POUND STERLING GAINS AHEAD OF BUSY US DATA WEEK, FED POWELL SPEECH

• The Pound Sterling clings to gains near 1.3400 against the US Dollar as the latter weakens after soft inflation data.
• A slight acceleration in the US core PCE inflation suggests that the Fed’s battle against inflation is not over yet.
• Investors await Fed Powell and BoE Greene’s speech.

The Pound Sterling (GBP) continues to hold gains near the round-level resistance of 1.3400 against the US Dollar (USD) in Monday’s London session. The outlook for the GBP/USD pair remains firm as the Greenback trades near yearly lows after data released on Friday showed that US inflation decelerated further in August. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near the key support of 100.20.

The Personal Consumption Expenditure Price Index (PCE) report showed that the annual inflation grew by 2.2%, slower than estimates of 2.3% and July’s reading of 2.5%. This slowdown in price pressures is likely welcome news for Federal Reserve (Fed) Chair Jerome Powell and his colleagues. However, a victory over inflation is still not a given as the core PCE price index – which excludes volatile food and energy prices and is the Federal Reserve’s (Fed) preferred inflation measure – rose accelerated to 2.7% from the prior release of 2.6%.

The decline in US inflation has increased market expectations for more interest rate cuts, but it appears insufficient to cement another 50 basis points (bps) decline as the Fed is now more vigilant to growing labor market risks and an economic slowdown.

This week, investors will focus on a slew of US economic data such as the ISM Manufacturing and Services PMIs, ADP Employment, and Nonfarm Payrolls (NFP) data for September and JOLTS Job Openings data for August, which will provide fresh cues on the current health of job market and the economy.