Pound Falls as Sticky PCE Revives Fed Rate Hike Bets

Sterling slipped against the dollar in European trading on Friday, trading around 1.35908, after the U.S. Personal Consumption Expenditures (PCE) inflation data proved sticky, reigniting bets that the Federal Reserve may hike rates again and boosting the greenback broadly. The data showed price pressures remain elevated, dampening expectations for near-term rate cuts and prompting traders to reassess the rate outlook.

**Inflation Data Breaks Calm, Dollar Finds Support**

As the Fed's preferred inflation gauge, the core PCE price index's latest reading showed inflation stickiness exceeded expectations. This result directly challenged the market's prior optimism over a policy pivot toward easing. In response, the dollar index rebounded from recent lows, gaining against a basket of major currencies, while the pound came under pressure. Analysts noted that stubborn inflation and resilient economic performance may keep rate cuts off the table in the near term, and could even open the door to renewed hikes before year-end.

**Pound Faces Technical Pressure, Key Support in Focus**

From a technical perspective, the pound had approached a six-month high before losing momentum, and the current pullback is now testing short-term support. If the dollar continues to benefit from rate hike expectations, the pound may seek further downside support. However, some argue that market speculation over rate hikes may be overdone. Certain analysts suggested that if oil prices retreat sharply in the coming period, the Fed could afford to stay patient on inflation, limiting the scope for hikes and keeping the dollar's rebound short-lived. Whether the pound can stabilize will depend on how the market reprices the Fed's policy path.

**Markets Eye Central Bank Signals and Economic Data**

Looking ahead, investors will closely monitor public remarks from Fed officials as well as upcoming economic data releases to gauge inflation trends and the likelihood of further hikes. Any hawkish signals on the rate outlook could provide additional momentum for the dollar and pile more pressure on the pound. Conversely, soft data or cautious commentary could offer the pound a window for recovery.