The British Pound traded little changed against the US Dollar on Friday, with GBP/USD hovering around 1.3458 as the Greenback attempted to recover following a sharp decline earlier in the week. Although the US Dollar regained some ground after Thursday’s heavy selling, the currency remained on track for its weakest weekly performance since early April, reflecting reduced expectations for aggressive Federal Reserve tightening.
Recent US economic data offered mixed signals. The University of Michigan’s Consumer Sentiment Index improved to 55.2 in its final July reading from a preliminary estimate of 54.4, indicating a modest improvement in household confidence. Meanwhile, inflation expectations remained unchanged, with consumers projecting inflation at 4.2% over the next year and 3.3% over the next five years. According to Survey Director Joanne Hsu, confidence improved broadly across income levels, age groups, education, wealth, and political affiliations, suggesting a gradual improvement in overall consumer sentiment.
Despite stronger confidence data, broader US economic indicators continued to support expectations for a cautious Federal Reserve. The US economy expanded at a slower-than-expected pace during the second quarter, while the Fed’s preferred inflation measure, the Core Personal Consumption Expenditures (PCE) Price Index, declined by 0.1% in June. In addition, Fed Chair Kevin Warsh refrained from providing clear forward guidance at the latest policy meeting, leading markets to reduce expectations for another interest rate increase. Investors now anticipate only around 23 basis points of additional tightening by the end of the year.
Several Federal Reserve officials nevertheless maintained a hawkish tone. Dallas Fed President Lorie Logan argued that inflation risks remain tilted to the upside and said she would have preferred a 25-basis-point rate increase. Cleveland Fed President Beth Hammack stated that current policy is not restrictive enough to bring inflation fully under control, while Minneapolis Fed President Neel Kashkari also supported a gradual quarter-point hike to prevent inflation from becoming entrenched.
In the United Kingdom, the Bank of England kept interest rates unchanged but acknowledged that geopolitical uncertainty, particularly surrounding the US-Iran conflict, could still influence future policy decisions. Even so, financial markets continue to price in the possibility of a 25-basis-point BoE rate hike before year-end, providing underlying support for the Pound.
Trade Idea:
Buy GBP/USD above 1.3470, targeting 1.3535, with a stop-loss at 1.3425. Softer Federal Reserve rate expectations and potential Bank of England tightening could support further gains in the pair.