Pound edges lower, markets eye FedSpeak

The British pound is down slightly on Friday. GBP/USD is down 0.14%, trading at 1.2648 in the European session at the time of writing.

It has been a good week for the pound, which has gained 1% against the US dollar. Wednesday’s inflation release showed CPI dipping in April, reversing the trend of the past several months. The unexpected stickiness in inflation had delayed a rate cut from the Federal Reserve and the drop in April inflation raised expectations for a rate cut, sending equity markets higher and the US dollar lower, with GBP/USD jumping 0.75% on Wednesday.

The Federal Reserve has been cautious about shifting its “higher for longer” policy, which has kept rates on hold for six straight times. The unexpected rise in inflation in the first quarter and strong US economic data has delayed plans to lower rates. The Fed signaled in January that it was planning to cut rates three times this year but is now looking at one or perhaps two rate cuts before the end of the year.

There are no key economic releases out of the US today but three FOMC members, Waller, Daly and Kugler, will deliver speeches which could provide some insights into future US rate policy. FOMC members have sounded rather hawkish, saying that restrictive policy is working and there is no rush to lower rates.

The Bank of England is under pressure to lower rates as inflation has fallen to 3.2%. The path to achieving the 2% target is likely to be bumpy but the labour market is showing signs of cooling down, which supports a rate cut. The June meeting promises to be interesting, with the markets pricing in a 50/50 probability of a rate cut or a hold.

GBP/USD technical

• GBP/USD is putting pressure on support at 1.2642. Below, there is support at 1.2615.

• 1.2672 and 1.2699 are the next resistance lines.