GBP/USD plummets below 1.2500 as US Dollar dominates due to faded Fed rate cut prospects

The GBP/USD pair dips below the psychological support of 1.2500 in Friday’s London session. The Cable weakens due to firm US Dollar. The demand for the US Dollar remains buoyant as stubbornly higher United States inflation data for March forced traders to price out market expectations for rate cuts by the Federal Reserve (Fed), which were anticipated in the June and July meetings.

The market sentiment is downbeat as the Fed is now projected to start reducing interest rates from the September meeting. Also, investors expect that there will be only two rate cuts this year instead of three. There were expectations of six rate cuts at the start of the year.

S&P 500 futures have generated some losses in the European session. The US Dollar Index (DXY) rallies to near 106.00 amid hopes that the Fed will begin reducing interest rates later than other central banks from developed economies. 10-year US Treasury yields fell slightly from four-month high around 4.60%.

Going forward, the US Dollar will be guided by the monthly Retail Sales data of March which will be published on Friday. The monthly Retail Sales data that represents households’ spending is forecasted to have grown at a slower pace of 0.3% from the former reading of 0.6%. This would ease fears of inflation remaining persistently higher.

On the United Kingdom front, the Pound Sterling fails to find bid despite upbeat factory data and expected increase in monthly Gross Domestic Product (GDP) for February. The UK GDP expanded by 0.1% as expected after rising 0.2% in January. Proof of expansion in first two months indicate that the technical recession recorded in the second half of 2023 was shallow.

Next week, the US Consumer Price Index (CPI) and labor market data will significantly influence speculation for the Bank of England (BoE) to begin reducing interest rates, which financial markets are currently expecting from August.