GBP/USD holds above 1.2700 ahead of US PCE data

• GBP/USD flat-lines near 1.2707 in Friday’s early Asian session.
• US Gross Domestic Product (GDP) expanded by 3.3% in Q4 vs. 4.9% prior, better than expected.
• The Bank of England (BoE) is expected begin its rate-cutting cycle at its August meeting.

The GBP/USD pair trades on a flat note above the 1.2700 psychological mark during the early Asian trading hours on Friday. The upbeat US GDP growth numbers boosted the Greenback aganist its rivals. The markets might turn cautious ahead of the Fed’s preferred inflation measure, Core Personal Consumption Expenditures Price Index (Core PCE), due later on Friday. GBP/USD currently trades around 1.2707, gaining 0.01% on the day.

On Thursday, the US Gross Domestic Product (GDP) data expanded by 3.3% in the last quarter of 2024 from 4.9% recorded in the July-September quarter, above the market consensus of 2.0%. The Initial Jobless Claims rose 25K to 214K in the week ended January 20 from the previous week of 189K. Finally, the Fresh orders for Durable Goods were stagnant in Decemebr against expaectations of 1.1%. 

Traders will take more cues from the December Core PCE reports. If the data remain strong, there is room for Fed funds future pricing to converge towards the FOMC’s projections for only three cuts this year. This, in turn, might boost the Greenback and acts as a headwind for GBP/USD.

The Bank of England (BoE) is widely anticipated to maintain interest rates steady at 5.25% for the fourth time in a row next week. The markets anticipate that BoE rate cuts is likely to begin in August. Investors expect policy rate will be cut by 175 basis points (bps) through the cycle, reaching 4.50% by December 2024 and 3.50% by mid-2025.

Moving on, traders will monitor the UK GfK Consumer Confidence for January. The attention will turn to the US Core Personal Consumption Expenditures Price Index (Core PCE) later on Friday, which is expected to rise 0.2% MoM and 3.0% YoY. Trader will take cues from these figures and find trading opportunities around the GBP/USD pair.