GBP/USD steadied after the release of U.S. Personal Consumption Expenditures (PCE) data, which initially lifted the pound to a Friday high of 1.2670, just below the 10-day moving average resistance. The PCE data suggested that inflation is moving toward the Federal Reserve's 2% target. However, concurrently released consumption data hinted that inflationary pressures might persist, reversing the initial rise in GBP/USD. Absent significant moves in U.S. or UK economic data or new guidance from central banks, GBP/USD is likely to remain within its recent trading range, bounded by Thursday's low of 1.2613 and Tuesday's high of 1.2702, as traders await clearer signals on whether the current parallel rate paths for the Federal Reserve and the Bank of England (BoE) will diverge.

Despite fluctuations around individual data releases, the Fed and BoE are currently expected to implement just under two rate cuts by their respective December meetings. Interest rate futures indicate a higher chance of an earlier BoE rate cut, potentially in August, compared to September for the Fed, which has exerted some downward pressure on the pound since the BoE's dovish tone at its last meeting. Looking further ahead on the Secured Overnight Financing Rate (SOFR) and Sterling Overnight Index Average (SONIA) strips, UK rates are projected to fall slightly lower than U.S. rates after 2025, potentially adding further downward pressure on the pound. However, with the U.S.-UK spread differential projected at +10 and +15 basis points by December 2026 and 2027, GBP/USD is likely to remain anchored near current levels barring significant changes in inflation or growth prospects.

Sterling's initial rise following the PCE data unraveled after the release of upbeat Chicago PMI and University of Michigan (UMich) data. By the North American afternoon, sterling was steady at 1.2643, up 0.03%, with a trading range of 1.2670 to 1.2620. The initial rise was dialed back amid rising U.S. consumption data. Looking ahead, next week features a U.S. holiday on Thursday, with UK and French elections in focus, as well as the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday and the Non-Farm Payrolls (NFP) report on Friday. Federal Reserve members Barkin, Daly, and Bowman will deliberate on the policy need to see lower inflation. Key resistance levels for GBP/USD are at 1.2670 (Friday high), 1.2702 (June 25 high), and 1.2736 (50% Fibonacci retracement of the 1.2860-1.2613 move). Support levels are at 1.2627 (55-DMA), 1.2620 (Friday post-UMich low), and 1.2583 (daily cloud top).

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