The British Pound rose against the US Dollar on Friday, as GBP/USD moved up to about 1.3393 after a two-day decline. This recovery followed its sharpest drop in nearly seven weeks. The US Personal Consumption Expenditures (PCE) Price Index for August met expectations, giving no new signals for the Federal Reserve. As a result, the US Dollar Index slipped slightly and traded around 98.35 after reaching a three-week high.

Core PCE Price Index Trends

The core PCE Price Index increased by 0.2% monthly, matching predictions and revising July’s figure from 0.3% to 0.2%. Yearly, the core PCE stayed at 2.9%, which is above the Fed’s target of 2%. Overall, the PCE Price Index rose by 0.3% in August, with the yearly rate climbing to 2.7%. Personal income increased by 0.4%, while spending grew by 0.6%, highlighting strong consumer demand. A survey by the University of Michigan showed a slight decrease in consumer sentiment and expectations. Richmond Fed President Thomas Barkin pointed out challenges in the labor market, stressing that future policy will depend on incoming data. FXStreet reminds readers that market data is for informational purposes only and does not constitute financial advice. They recommend thorough personal research before making investment choices.

Market Outlook and Strategies

The British Pound is gaining against the US Dollar now that the latest US inflation data has met expectations. This pause in the dollar’s strength, which had pushed GBP/USD down to seven-week lows, opens up a trading opportunity. The US Dollar Index (DXY) drifting down from recent highs suggests that the market is adjusting its expectations for immediate interest rate hikes. Although the Core PCE inflation rate is still high at 2.9%, it’s crucial to see this in light of earlier in 2025 when it was over 4.0%. The gradual decrease, along with the Fed Funds Rate steady at 5.00-5.25% for the last two meetings, indicates that the central bank might be nearing the end of its tightening cycle. Strong consumer spending plays a role, but it isn’t the only factor influencing Fed policy anymore. Attention is now turning to the Fed’s dual mandate, especially its employment goal, which is becoming more relevant as the labor market softens. The unemployment rate increased to 3.9% in August 2025 from earlier lows of 3.5% this year, showing that the strict policy is affecting the economy. This makes the Fed more cautious about further tightening that could lead to a sharp downturn. For derivative traders, the current data-driven environment suggests that implied volatility could rise ahead of major US jobs and inflation reports in October. With the Fed at a potential turning point, options strategies that benefit from significant movements, like long straddles on GBP/USD, might be worth considering. The market seems poised for a reaction to the next significant data release, which could either boost the dollar or confirm its peak. However, we should also keep in mind the UK situation. The pound’s strength isn’t guaranteed. The Bank of England faces ongoing inflation, currently at 6.5%, and a weaker growth forecast than the US. This indicates that any growth in the GBP/USD pair may be limited, suggesting strategies like selling out-of-the-money call options to hedge against a potential reversal could be wise. Create your live VT Markets account and start trading now.

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