GBP/USD sTrengthens Above 1.2650, Focus On US PMI

GBP/USD strengthened to around 1.2655 in early Asian trading on Monday. The dollar fluctuated lower as the annual rate of the US PCE price index in May fell to the lowest level in more than three years, which provided some support for GBP/USD. Traders are waiting for the US ISM Purchasing Managers’ Index (PMI) for June, which will be released next Monday, for new impetus.

The core PCE price index, the Federal Reserve’s preferred inflation indicator, continued to decline in May, sparking speculation that the Fed will cut interest rates this year. The core PCE price index climbed to 2.6% in May from 2.8% in April, in line with expectations. The annual rate of the US PCE price index in May increased by 2.6%, higher than the expected value of 2.7%.

Fed officials have emphasized in recent weeks that they will cut interest rates when they are convinced that inflation has fallen close to the 2% target. John Williams, president of the New York Fed, said that inflation is still at a problematic level and the Fed will take action to reduce inflation. Fed Governor Michelle Bowman noted that while the Fed’s current policies should be sufficient to get inflation back to target, she added that the central bank should not discourage the prospect of further rate cuts if inflation data remain stubborn.

The UK general election will be held on Thursday, an event that is likely to cause volatility in GBP/USD. According to the latest exit polls, the opposition Labour Party is expected to win against the Conservative Party led by British Prime Minister Rishi Sunak.

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