GBP/USD Rebounds as US Dollar Weakens Amid Rising Fed Rate Cut Expectations

GBP/USD has recovered losses from the previous session, trading near 1.2770 during Thursday’s Asian session. The pair gains strength as the US Dollar (USD) retreats from a four-day winning streak, despite support from elevated US Treasury yields.

The US Dollar Index (DXY), which tracks the USD against six major currencies, hovers around 106.50. Meanwhile, yields on US 2-year and 10-year Treasury bonds are reported at 4.16% and 4.28%, respectively.

The USD faces headwinds as the latest US Consumer Price Index (CPI) data does little to deter speculation of a Federal Reserve (Fed) rate cut in December. According to the CME FedWatch Tool, there is nearly a 99% probability of a 25-basis-point rate reduction during the Fed’s December 18 meeting. Market participants now turn their attention to the US November Producer Price Index (PPI), set for release later on Thursday, for further direction.

In November, the US CPI rose to 2.7% year-over-year, up from 2.6% in October, aligning with expectations. Month-over-month, headline CPI posted a 0.3% increase, matching market consensus. Core CPI, excluding food and energy, advanced 3.3% YoY and 0.3% MoM, both in line with forecasts.

In the UK, the RICS Housing Price Balance jumped to 25% in November, up from 16% in October and exceeding the expected 19% increase. Published by the Royal Institution of Chartered Surveyors, this measure reflects a strengthening UK housing market, often viewed as a proxy for the broader economy.

The British Pound (GBP) benefits from growing market confidence in the Bank of England (BoE) maintaining its interest rate at 4.75% in December. BoE policymakers are widely expected to hold rates steady. Traders now shift their focus to the UK’s October monthly GDP data, scheduled for release on Friday, for additional economic cues.