US dollar wavers despite sticky US inflation  

The US dollar struggled on Friday as expectations of a September interest rate cut by the Federal Reserve offset a stickier-than-forecast core PCE price index in the US.

Meanwhile, the pound is trading in a narrow range at the start of this week, with GBP/EUR flat at €1.1854 and GBP/USD stable at $1.2870, respectively. GBP/CAD is muted at CA$1.7787, while GBP/AUD and GBP/NZD hold steady at AU$1.9627 and NZ$2.1844, respectively.

Looking ahead, will bearish trading conditions lift the safe-haven ‘greenback’ today?

What’s been happening?

The US dollar traded in a narrow range on Friday following the release of the latest core PCE price index. The Federal Reserve’s preferred gauge of inflation came in slightly above forecasts, holding steady at 2.6% in June.

However, markets appeared largely unmoved by the hotter-than-forecast release, as firm expectations of a September rate cut from the Fed limited investor interest in the ‘greenback’.

Similarly, the pound was mostly subdued as the week drew to a close, amid speculation that the Bank of England (BoE) will deliver its first rate cut since 2020 during its monetary policy meeting later this week.

Meanwhile, the publication of the European Central Bank’s (ECB) latest consumer inflation expectations report unexpectedly held at 2.8% in June, breaking four consecutive months of falls. The survey also showed a slight decline in economic growth projections across the bloc last month, dipping to -0.9%. However, the release fell largely by the wayside, as investors shrugged off signs of stabilising inflation expectations.

What’s coming up?

Turning to today’s session, a data-light calendar could prompt subdued trading conditions for the pound, the euro and the US dollar.

Additionally, an absence of macroeconomic releases could see global risk dynamics drive movement, with any gloomy trade likely to underpin the ‘greenback’ and the common currency, due to their safe-haven status.

However, with both the Fed and the BoE set to deliver their latest interest rate decisions later this week, investors may be hesitant to place any aggressive bets on either currency.

Elsewhere, UK Chancellor Rachel Reeves is due to speak later today. Reeves is set to provide the British parliament with a statement outlining the UK’s public finances, showing ‘honesty’ in regards to the fiscal challenges faced by the new UK Labour government. Could claims of a ‘black hole’ in government funds sour Sterling sentiment?