GBP/USD has posted small gains on Friday, after recording slight losses in four successive sessions. Currently, GBP/USD is trading at 1.2626, up 0.14% on the day. On the release front, there are no major British events. It was a busy day for U.S. fundamentals. The Federal Reserve’s preferred inflation gauge, Core PCE Price Index, improved to 0.2%, matching the forecast. However, personal spending slowed to o.3%, after a strong gain of 0.9% in the previous release. Consumer confidence also softened, dropping from 102 in April to 100 in May.
The Federal Reserve continues insist that its stance is neutral with regard to interest rate moves. The Fed has said that the next rate move could be in either direction, but the markets are by no means convinced. The well-respected CME Group has priced in a quarter-point rate cut at 36% in June, and 46% in September. These figures are quite high, given the strength of the U.S. economy, which posted impressive growth of 3.1% in the first quarter. If the ongoing trade war with China continues, U.S. growth could soften, likely raising the odds of a rate cut in the next few months.
The Bank of England is forecasting weak growth for the British economy. Earlier in May, the bank projected growth of 1.5% for 2019 and 1.6% in 2020, and that is on the assumption that the Brexit process goes smoothly. On Thursday, Deputy Governor Dave Ramsden took issue with his MPC colleagues, saying that he is more pessimistic about the economic outlook and believes that growth will be less than the bank’s forecast. Ramsden warned that a no-deal Brexit without a transition period would have “large negative economic effects”. Ramsden added that even if the U.K. crashed out of the EU without a deal, it did not automatically mean that interest rates should be cut.
