Sterling Holds Near 2-Month Low Ahead of U.S. Data

Key Moments

GBP/USD Stagnates Near Recent Lows

GBP/USD is locked in a bearish consolidation during the Asian session on Wednesday, hovering just above the two-month trough around the 1.3200 level that was reached on Tuesday. The broader setup continues to favor further weakness in the pair, but sellers appear reluctant to add new positions ahead of key U.S. macroeconomic releases.

Later in the day, markets will receive the latest reading of the U.S. Personal Consumption Expenditures (PCE) Price Index – widely viewed as the Federal Reserve’s preferred inflation measure – alongside the final estimate of second-quarter GDP. These numbers are expected to shape expectations for the Fed’s policy trajectory, significantly influencing U.S. Dollar dynamics and, by extension, providing a fresh catalyst for GBP/USD. Until then, the prevailing strength in the USD is likely to remain a drag on any sterling rebound attempts.

USD Supported by Fed Hike Bets and Geopolitical Tensions

The U.S. Dollar Index (DXY), which measures the currency against a group of peers, climbed on Tuesday to its highest level since July 28, helped by growing expectations for another Fed rate increase in October. Coupled with ongoing inflation concerns, these expectations have driven U.S. bond yields to multi-year highs, reinforcing support for the Greenback.

Geopolitical tensions are adding another layer of support for the USD through safe-haven demand. Persistent uncertainties tied to the US-Iran standoff continue to bolster the Dollar, reinforcing the bearish outlook for GBP/USD and substantiating the case for additional downside in the pair.

Market hopes for a negotiated end to the seven-month-old US-Iran war have dimmed after U.S. President Donald Trump rejected a seven-day ceasefire offer from Iran. Efforts by Qatar to mediate a breakthrough between the two sides have also seen limited progress this week. In a further development, U.S. officials reportedly believe Trump could order a return to major combat after the midterms. This backdrop keeps geopolitical risk elevated, favoring USD bulls and suggesting that the dominant direction for GBP/USD remains lower.

Technical Outlook for GBP/USD

From a technical perspective, GBP/USD maintains a bearish short-term bias. A clear move below the 1.3200 handle would open the door for a test of the year-to-date low near 1.3140, which was recorded in June. A break of that area would bring the 1.3100 round figure into focus. A sustained move beneath 1.3100 would signal scope for an extension of the downtrend that has been in place for roughly the past month.

On the upside, any corrective rally is likely to encounter firm resistance just ahead of the 1.3300 region. A decisive break above that zone could trigger short covering, potentially propelling the pair back toward the 200-day Simple Moving Average (SMA), currently located at 1.3448.

Core PCE Price Index – Key Details

The Core Personal Consumption Expenditures (PCE) Price Index, published monthly by the U.S. Bureau of Economic Analysis, tracks changes in the prices of goods and services purchased by U.S. consumers. It is the Federal Reserve’s preferred measure of inflation. The year-on-year reading compares prices in the reference month with those from the same month a year earlier. The core series excludes the more volatile food and energy components to provide a clearer signal of underlying price trends. In general, a higher reading tends to be supportive for the U.S. Dollar, while a lower figure is typically negative for the currency.

Why Core PCE Matters for Markets

After the release of GDP data, the U.S. Bureau of Economic Analysis issues the PCE Price Index figures, along with monthly changes in Personal Spending and Personal Income. Policymakers on the Federal Open Market Committee focus on the annual Core PCE Price Index, which strips out food and energy, as their primary inflation benchmark.

A Core PCE reading that exceeds expectations can bolster the U.S. Dollar against its peers, as it may signal the need for a more hawkish stance in the Fed’s forward guidance. Conversely, a weaker-than-anticipated figure can weigh on the currency by suggesting a less aggressive policy path.