Welcome to our daily morning FX Bites email. A 30-second snapshot of the key economic releases and risk events that lie ahead from across the globe.

The GBP/USD pair has attracted some sellers on Friday, pressured by modest USD strength. After reaching its highest levels since March 2022, around the 1.3435 region on Thursday, the pair has drifted lower during the Asian session, moving below the 1.3400 mark. This movement is influenced by a modest uptick in the US Dollar (USD), driven by repositioning ahead of the crucial US inflation data – the Personal Consumption Expenditures (PCE) Price Index, due later today.

The core PCE Price Index, which is the Federal Reserve’s preferred measure of inflation, is expected to rise by 0.2% month-over-month (MoM) and 2.7% year-over-year (YoY) in August. The headline PCE is anticipated to increase by 0.1% MoM and 2.3% YoY, continuing its downward trend. While this data may influence the very-near-term trajectory of the USD, it is unlikely to alter the Fed’s course regarding its interest-rate path. Markets have already priced in nearly 50 basis points (bps) of easing over the next two Federal Reserve meetings.

Despite the dovish tone from the Fed, which recently cut interest rates by 50 bps, the US Dollar Index (DXY) rebounded to near 100.65 during Friday’s Asian trading hours. Fed Chair Jerome Powell described the rate cut as a “recalibration” to maintain labor market strength while targeting 2% inflation. Further rate cuts are expected, but the path is not preset. Fed officials, including Lisa Cook and Adriana Kugler, have indicated that additional cuts may be appropriate if current conditions persist.

In the Eurozone, EUR/GBP has gained ground ahead of speeches from ECB’s Philip Lane and Piero Cipollone on Friday. However, the Euro may face challenges as the ECB is widely expected to deliver another rate cut in October. The Pound Sterling receives support as the Bank of England (BoE) is expected to reduce rates more gradually compared to other central banks. EUR/GBP retraced its recent losses from the previous session, trading around 0.8340 during Friday’s Asian hours. However, further gains may be limited due to the Euro’s weak performance amid increasing speculation that the ECB could lower the Deposit Facility Rate for the second consecutive time next month.

ECB Chief Economist Philip Lane will likely deliver the opening remarks at a conference focused on Fiscal Policy, Financial Sector Policy, and Economic Growth in Dublin, Ireland. Meanwhile, ECB board member Piero Cipollone will give a keynote speech at the “Economics of Payments XIII” conference, organized by the Austrian Central Bank. According to a Reuters report, economists at HSBC anticipate that the ECB will reduce interest rates by 25 basis points at each meeting from October through next April. Societe Generale economist Anatoli Annenkov suggested there is a case for front-loading the rate cuts, indicating a preference for more aggressive action earlier in the easing cycle.

Meanwhile, the global risk sentiment remains supported by hopes that interest rate cuts will boost global economic activity. The People’s Bank of China (PBOC) announced stimulus measures, including a cut to the seven-day repo rate and a lower Reserve Requirement Ratio (RRR), boosting investor appetite for riskier assets.

In the UK, expectations that the BoE’s rate-cutting cycle will be slower than in the US should continue to underpin the GBP and limit losses for the GBP/USD pair. The BoE allotted 37.059 billion pounds ($49.52 billion) in seven-day funds during its weekly short-term repo on Thursday, down from last week’s record of 44.523 billion pounds. Repos, or repurchase agreements, allow banks to temporarily exchange government bonds for central bank cash, helping to maintain market interest rates in line with the BoE’s policy rate.

Please feel free to reach out if you have any questions or need further insights.

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