Pound strengthens against USD ahead of US core PCE inflation
The pound (GBP) traded in a tight range slightly above the key support level of 1.2400 against the US dollar (USD) during the European session on Friday. The GBP/USD pair was steady despite increased demand for the safe-haven US dollar on Thursday after US President Donald Trump reiterated his intention to impose 25% tariffs on Canada and Mexico starting Saturday and 100% on BRICS if they try to replace the US dollar with a new currency in international trade.
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, was trading near its weekly high of 108.20. On his social media platform TruthSocial, Trump said, “We will demand a commitment from these seemingly hostile nations that they will not create a new BRICS currency or support another currency to replace the mighty US dollar, or they will face 100% tariffs.” He added that there is no chance that “BRICS will replace the US dollar in international trade” or anywhere else, and any country that tries should say, “Hello Tariffs, and Goodbye America!”
Market participants believe that higher tariffs from President Trump would be inflationary for the US economy, which could force the Federal Reserve (Fed) to keep interest rates at current levels for longer. On Wednesday, the Fed announced a pause in its easing cycle and kept its benchmark lending rate unchanged in the range of 4.25%-4.50%.
Fed Chairman Jerome Powell said that monetary policy adjustments would be appropriate when central bankers see “real progress on inflation or at least some weakness in the labor market.”
On Friday, investors will be closely watching the US Personal Consumption Expenditures (PCE) Price Index data for December, due out at 13:30 GMT. Core PCE inflation, the Fed's preferred inflation gauge, is expected to accelerate to 0.2% month-on-month from 0.1% in November, with the annualized figure growing steadily at 2.8%.
Source: FXStreet
