Sterling Under Pressure as US Inflation Boosts Dollar

The pound sterling weakened by approximately 0.39% against the US dollar during Wednesday's trading (August 26) after a US inflation report indicated that price pressures remained high. This situation heightened expectations that the Federal Reserve might raise interest rates again before the end of the year. The GBP/USD pair traded below the 1.3600 level, having previously touched the 1.3651 area.

The US core Personal Consumption Expenditures (PCE) price index for July stood at 3.3% year-on-year, unchanged from June and in line with market forecasts. Meanwhile, headline PCE inflation held steady at 3.7%, exceeding the projected 3.6%. Other data showed the US economy growing at an annualized rate of 1.5% in the second quarter of 2026, while durable goods orders rose 1.1% month-on-month, surpassing the 0.5% increase in June and market expectations.

Following the data release, the US Dollar Index rose 0.27% to 99.17. The yield on the 10-year US Treasury note also climbed about four basis points to 4.664% as investors priced in a more hawkish Fed policy stance. Money markets estimate a 39% chance of an interest rate hike in September, while the probability of a 25-basis-point increase in December stands at 74%.

With no major economic events scheduled in the UK on Wednesday, GBP/USD movements were driven primarily by global developments, market sentiment, and US economic data. Investor attention now shifts to US initial jobless claims data on Thursday, followed by the University of Michigan consumer sentiment index and a speech by Fed Chair Kevin Warsh at the Jackson Hole Symposium on Friday.

Market impact: High US inflation, rising Treasury yields, and an increased likelihood of monetary tightening have combined to boost the US dollar while putting pressure on the pound sterling. If US labor market data remains robust and Warsh adopts a hawkish tone, GBP/USD risks further decline. Conversely, more cautious remarks regarding interest rate hikes could pave the way for a sterling recovery.

Newsmaker Analysis: GBP/USD remains under pressure as the US dollar is bolstered by expectations of Federal Reserve rate hikes. The 1.3600 area is a key level for short-term movements, while Warsh's speech could serve as the next major catalyst. A firm stance on inflation might prolong the sterling's correction, whereas a focus on economic slowdown or labor market weakness could potentially ease pressure on the pound. (arl)

Source: Newsmaker.id