GBP/USD trades stronger above 1.3350 on dovish Fed and weaker US PCE data

• GBP/USD remains firm around 1.3385 in the first Asian session on Monday.
• In August, US PCE inflation fell to the Fed’s target.
• The BoE is expected to cut interest rates once before the end of the year.

GBP/USD holds positive ground near 1.3385 during the early Asian session on Monday. Expectations of further interest rate cuts by the Federal Reserve (Fed) and the less accommodative stance of the Bank of England’s (BoE) less accommodative rate cuts are providing some support for the major pair. Fed Governor Michelle Bowman is scheduled to speak later Monday.

US inflation eased to a pace closer to the Fed’s 2% target. The personal consumption expenditures (PCE) price index rose 2.2 percent year-on-year in August, compared with 2.5 percent in July, the US Bureau of Economic Analysis (BEA) showed on Friday. This figure was weaker than estimates of 2.3%. Core PCE rose 2.7% in August, in line with consensus.

On a monthly basis, the PCE Price Index rose 0.1% over the same reporting period. Interest rate futures had a nearly 54 percent chance of a half-point cut in November, compared with a 46 percent chance of a quarter-point cut, according to CME’s FedWatch tool.

The upside for the British pound (GBP) is supported by anticipation that the BdE rate cut cycle is likely to be slower than in the United States (US). This in turn acts as a tailwind for GBP/USD. Amid the lack of headline UK economic data released from the UK file this week, the GBP will be influenced by market expectations of the BoE’s monetary policy action for the rest of the year.