GBP/USD edges higher as US Dollar eases after PCE and UoM sentiment data

• The British Pound steadies after a two-day slide, with GBP/USD staging a modest recovery.
• The US PCE inflation report came broadly in line with forecasts, keeping the Fed’s outlook steady.
• The core PCE Price Index rose 0.2% MoM and headline PCE rose 0.3% MoM in August, up from 0.2% in July.

The British Pound (GBP) gains traction against the US Dollar (USD) on Friday, with GBP/USD snapping a two-day losing streak. At the time of writing, the pair is hovering near 1.3393, staging a modest recovery after dropping to its weakest level in about seven weeks on Thursday.

Fresh momentum in Sterling came after the release of the August US Personal Consumption Expenditures (PCE) Price Index, which broadly met market forecasts and offered no new hawkish cues for the Federal Reserve (Fed). The data kept the Greenback on the defensive, with the US Dollar Index (DXY), which gauges the Greenback’s value against six major peers, easing slightly from three-week highs to trade around 98.35.

The core PCE Price Index, the Fed’s preferred gauge of underlying inflation, rose 0.2% MoM in August, matching forecasts and below July’s originally reported 0.3%, which was revised down to 0.2%. On an annual basis, core PCE held steady at 2.9%, still above the Fed’s 2% target.

The headline PCE Price Index rose 0.3% on the month, in line with expectations and up from 0.2% in July, while the annual rate ticked up to 2.7% in August from 2.6% a month earlier. The report also showed that personal income rose 0.4% in August, slightly above expectations, and personal spending climbed 0.6%, up from 0.5% in July, signaling that US consumer demand remains resilient.

The latest University of Michigan survey showed that both consumer sentiment and expectations softened slightly in September, while short- and long-term inflation expectations also eased modestly

Richmond Fed President Thomas Barkin said on Friday that while the labor market appears to be softening, the supply of workers is also growing more slowly, which reduces the risk of a sharp spike in unemployment. He noted that there is limited risk of either a big rise in unemployment or a renewed surge in inflation, stressing that the Fed is now focused on balancing its dual mandate.

Barkin emphasized that future policy moves will hinge on incoming data, saying the Fed may need to tilt a bit more toward its employment mandate following the recent rate cut, which he argued should support the labor market while keeping pressure on inflation.