GBP/USD holds a position around 1.3200 ahead of UK PM Starmer’s speech

• GBP/USD inches higher on improved market optimism amid easing Middle East tensions.
• San Francisco Fed President Daly backed the idea of ​​starting interest rate cuts with a 25 basis point cut.
• UK Prime Minister Starmer may stress that “change will not happen overnight”, but he is committed to tackling bigger issues.

GBP/USD inches higher as worries about a wider conflict looming in the Middle East eased after a firefight between Israel and Lebanon’s Hezbollah failed to escalate further. US Air Force General CQ Brown, chairman of the Joint Chiefs of Staff, told Reuters on Tuesday morning after wrapping up a three-day trip to the region. Risk-sensitive GBP/USD is trading around 1.3190 during Asian hours on Tuesday.

US Federal Reserve (Fed) Chairman Jerome Powell said at the Jackson Hole Symposium on Friday: “The time has come for policy to adjust.” However, Powell did not specify when the rate cuts would begin or their potential size. According to the CME FedWatch tool, markets fully anticipate a rate cut of at least 25 basis points (bps) by the Federal Reserve at its September meeting.

In addition, San Francisco Federal Reserve President Mary Daly said in an interview with Bloomberg TV on Monday that “the time has come” to start cutting interest rates, possibly starting with a quarter-percentage point cut. Daly suggested that if inflation continues to gradually decline and the labor market maintains a “containable, sustainable” pace of job growth, it would be reasonable to “adjust policy to the usual, normal cadence.”

In the United Kingdom (UK), the BRC shop price index fell 0.3% year-on-year in August, compared with a previous increase of 0.2% in July. British shop prices fell in annual terms this month for the first time since October 2021, pushed down by summer sales of clothes and home goods.

British Prime Minister Keir Starmer said last week that tackling Britain’s many challenges would take time, warning that “things will get worse before they get better” in a speech he described as an opportunity to be honest with the public. As Britain’s parliament returns to work from its summer break on Tuesday, Starmer may stress that “change won’t happen overnight” but his government is committed to tackling a wide range of issues, from overcrowded prisons to the lists long waiting times for health services.