• The Pound Sterling trades sideways around 1.3200 against the US Dollar, with investors focusing on the US core PCE inflation data for July.
• Fed’s Mary Daly kept doors open for an aggressive policy easing if the US labor market deteriorates.
• British shop price inflation slowed sharply in August.

The Pound Sterling (GBP) clings to gains near the round-level figure of 1.3200 against the US Dollar (USD) in Tuesday’s London session. The GBP/USD pair is sort of taking a breather after last week’s sharp increase, with investors looking for fresh cues about the likely size of the Federal Reserve (Fed) interest rate cut in September. 

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of a 50-basis-points (bps) interest-rate reduction in September is 28.5%, while the rest favors a smaller cut of 25 bps. The tool unambiguously shows that the Fed’s return to policy normalization is fully priced in by traders, a move that has kept the US Dollar on the back foot for more than a week.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, exhibits a subdued performance below the immediate resistance of 101.00.

On Monday, San Francisco Fed Bank President Mary Daly emphasized the need to cut interest rates in September. Daly supported a 25 bps interest rate cut but also left doors open for a bigger one if the labor market deteriorates, she said in an interview on Bloomberg.

The confidence of investors that the Fed will begin reducing interest rates from September rose after Fed Chair Jerome Powell said that the time has come for policy to adjust in his speech at the Jackson Hole (JH) Symposium on Friday. Jerome Powell also showed concerns over easing labor market conditions and vowed to support it.

This week, investors will keenly focus on the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for July, which will be published on Friday. Annual core PCE is estimated to have accelerated to 2.7% from the prior release of 2.6%, with monthly figures seen growing steadily by 0.2%. Before that, the US economic calendar will offer on Tuesday the release of the  S&P/Case-Shiller Home Price Indices for June and The Conference Board’s gauge of Consumer Confidence for August.