Ella 
During Friday’s trading session, the British pound (GBP) fell further against the U.S. dollar (USD) to 1.2740 as the latter remained firm. The U.S. dollar index (DXY), which tracks the greenback against six major currencies, continued to rise to 105.40. The dollar index rose for the second consecutive day as the Federal Reserve’s (Fed) hawkish stance on the interest rate outlook outweighed the impact of weak U.S. consumer price index (CPI) and producer price index (PPI) reports for May.
The U.S. PPI report released on Thursday showed that the monthly headline PPI fell 0.2% due to weak gasoline prices, and the core producer inflation rate, which excludes volatile food and energy prices, was flat.
The cooling of the consumer and producer inflation reports suggests that the core personal consumption expenditures price index (PCE) reading, which is the Fed’s preferred inflation indicator, will also show weakening inflationary pressures. This strengthens expectations of an early rate cut by the Federal Reserve. According to the CME FedWatch tool, 30-day Fed fund futures pricing data showed that traders believe that the probability of a rate cut decision in September is 65%. The probability has risen sharply compared to 50.5% a week ago.
On Wednesday, the Federal Reserve kept interest rates unchanged in the range of 5.25%-5.50%, and only said it would cut interest rates once this year, compared with the previous forecast of three rate cuts. Policymakers scaled back the number of rate cuts in their latest forecasts because they are concerned that the progress of deflation has slowed. In a press conference after the rate decision, Fed Chairman Jerome Powell said that the weak inflation report in May was encouraging, but officials also wanted to see price pressures fall for several consecutive months to build confidence in cutting interest rates. Powell added that if labor market conditions begin to ease, policymakers will respond quickly to rate cuts.
