The GBP/USD currency pair stabilized at around the 1.3650 level during European trading hours. This shift represented a comeback from previous damage in the currency market. The recovery is taking place under the shadow of very volatile inflation expectations. At the same time, the US Dollar staged a slight recovery from its lowest point since early July.
Traders cautiously placed bets while preparing for the Federal Open Market Committee (FOMC) decision. Consequently, the dollar continued to exert pressure on precious metals—in this case a reflection of changing market sentiment. Tariff impacts on the US economy are changing. As they start to work their magic on consumer prices, their total effect has been minimal to date.
Inflation dynamics are particularly noteworthy this month. UK Consumer Price Index (CPI) inflation data for August came out exactly in line with market expectations. It was not enough to provide the Pound Sterling with the bullish impetus to break higher. Though surging inflation is a concern around the world, these most recent inflation figures are reassuringly modest.
In a macroeconomic sense, given mounting global inflationary pressures, we can expect tariff pass-through to be lagging and still in progress. According to FXStreet, “Global inflation watch: Tariff pass-through still in progress.” As we previously noted, this observation highlights the paramount need to track how tariff costs are being passed through into end-user prices.
The US Dollar’s pungent performance lately has largely been dictated by inflationary headwinds. Analysts like Bill McBride argue that inflation expectations in the United States are not at all similar to those prevailing abroad. With inflation expectations being redefined, market actors are still on the lookout for signs that central banks around the world might start changing tack on monetary policy.
Market sentiment would suggest that the Bank of Canada (BoC) doesn’t stand a chance. With economic growth slowing and the labor market beginning to show cracks, signs point toward interest rates being lowered. FXStreet gives us this hot take, “BoC headed for rate cut as growth slows; labor market losing steam.”
With the GBP/USD stabilizing around 1.3650, focus is now turning towards upcoming Federal Reserve announcements. As a result, analysts are still cautiously optimistic as they wait to see how these economic indicators will affect future shifts in monetary policy.
“GBP/USD steadies near 1.3650 as focus shifts to Fed.” – FXStreet