Pound Sterling rises as Fed Powell admits progress in disinflation.

The Pound Sterling jumps against the US Dollar as Fed Powell sees quite a bit of progress in disinflation.
UK’s annual shop price inflation decelerated to its lowest since October 2021.
The BoE may start cutting interest rates in August.

The Pound Sterling (GBP) recovers sharply after retracing to 1.2620 against the US Dollar (USD) in Tuesday’s New York session. The GBP/USD pair rebounds as the US Dollar (USD) surrenders of its gains after Federal Reserve (Fed) Chair Jerome Powell said in his speech at the European Central Bank (ECB) Forum on Central Banking that disinflation appears to have resumed. Fed Powell added that the central bank has made quite a bit of progress in inflation but said that more good inflation data is needed before reducing interest rates. Powell’s comments were much more in line with estimates and his speech delivered at the June policy meeting.

This week, investors will pay close attention to the United States (US) Nonfarm Payrolls (NFP) data for June, scheduled on Friday. The labor demand and the wage growth data will indicate whether the Fed should start reducing interest rates from the September meeting, as indicated by 30-day Federal Fund futures pricing data from the CME FedWatch tool.

Meanwhile, the US Bureau of Labor Statistics (BLS) has reported upbeat JOLTS Job Openings data for May. The number of fresh job vacancies came in at 8.14 million, higher than estimates of 7.90 million, and the prior release of 8.06 million.

Daily digest market movers: Pound Sterling bounces back against its major peers

The Pound Sterling recovers against its major peers from Europe, Asia and the Asia-Pacific but is underperforming against North American currencies in Tuesday’s session. The British currency attracts bids even though easing United Kingdom (UK) price pressures have boosted expectations of early rate cuts by the Bank of England (BoE).
The British Retail Consortium (BRC) showed on Monday that the annual shop price inflation grew 0.2% in June, at the slowest pace since October 2021, decelerating significantly from May’s reading of 0.6%. The agency also reported that food inflation slowed straight for 14 months, declining to 2.5% from 3.2%, and prices for non-food items fell by 1.0% year-on-year, Reuters reported.
It is worth noting that annual headline inflation, as measured by the Consumer Price Index (CPI), has already returned to the bank’s target of 2%. High inflation in the service sector continues to be a major concern for BoE officials. Policymakers see service inflation as the preferred gauge for price pressures and want it to decline significantly to gain confidence for pivoting to policy normalization.
Currently, investors expect the BoE to start reducing interest rates at its upcoming meeting in August.
Meanwhile, the revised estimates for the manufacturing sector showed that factory activities expanded modestly in June. The S&P Global/CIPS Manufacturing PMI report showed on Monday that the factory activity fell to 50.9 from the preliminary reading and the estimates of 51.4. However, it remained above the 50.0 threshold that separates expansion from contraction.