The pound edged 0.1% lower against the dollar (GBPUSD=X) on Friday morning, to trade at $1.3492, as the greenback strengthened ahead of US inflation data, due out later in the day.
The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six currencies, rose 0.2% to 97.98.
July's personal consumption expenditures (PCE) price index is due out at 8.30am EDT (1.30pm BST) on Friday.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Markets are pricing in around a high probability of a cut by the Fed next month, and today’s PCE inflation numbers will be a key data point for monetary policy setters.”
He said that core PCE in July is expected to have risen from 2.8% to 2.9% on an annualised basis, which would still be ahead of the Federal Reserve's 2% target.
“Markets are keeping a close eye on the impact of tariffs on the prices of goods and services,” said Nathan. “If inflation comes in hotter than expected, the path towards a drop in US borrowing costs in December will become a little less clear.”
Another topic in focus for investors is the Fed's independence, as US president Donald Trump has sought to fire governor Lisa Cook. There is set to be an emergency hearing about Cook's position on the board of governors on Friday, which is due to start at 10am EDT (3pm BST).
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Henry Allen, macro strategist at Deutsche Bank (DBK.DE), said that “this is going to be critically important for markets, as her removal would give president Trump the opportunity to refashion the board of governors in a more dovish direction”.
“In terms of the latest on the case, yesterday we got confirmation that Cook would be suing Trump to block his move to oust her, and the lawsuit also requested the courts to issue an injunction that would allow Cook to remain in her post as governor while litigation is ongoing,” he said.
“So that would be a bit like what happened with the tariffs, where the courts said they could still remain in place as the appeal moves through the courts.”
“Therefore, even if the overall case takes some time to reach a final verdict as the appeal moves through the courts, the injunction decision will have important implications for the Fed in the coming weeks and months,” Allen added.
In Europe, August flash consumer price index (CPI) prints for Germany, France, Spain and Italy are due out on Friday.
