GBP/USD rebounds above 1.2850 ahead of US PCE data

• GBP/USD holds positive ground around 1.2860 in Friday’s Asian session. 
• The US economy grew at an annual rate of 2.8% in Q2, stronger than expected. 
• The BoE is expected to cut rates for the first time in more than four years at its policy meeting next week.

The GBP/USD pair gains traction near 1.2860 amid the weaker Greenback, snapping the three-day losing streak during the Asian trading hours on Friday. However, the potential upside of the major pair seems limited as market players expect the Bank of England (BoE) to cut interest rates in August. 

The US economy grew faster than expected in the second quarter (Q2), according to the US Department of Commerce in an advance estimate released on Thursday. The US Gross Domestic Product (GDP) grows at an annual rate of 2.8% in Q2, marking an acceleration from 1.4% growth in Q1. This figure came in stronger than the estimation of 2%. 

However, the expectations of a September interest rate cut from the Federal Reserve (Fed) remain intact. Traders will closely watch the release of the US Personal Consumption Expenditures (PCE) Price Index data for June, which is due on Friday.

Furthermore, the US weekly Initial Jobless Claims for the week ending July 20 rose by 235,000, compared to the previous week of 243,000. This figure was below the consensus of 238,000. Meanwhile, US Durable Goods Orders declined by 6.6% MoM in June from a 0.1% increase in May, weaker than the 0.3% expected. 

On the GBP’s front, the Bank of England (BoE) is anticipated to cut the bank rate to 5% at its August meeting next week as inflation is expected to hover around the central bank target, according to a majority of economists in a Reuters poll. Additionally, UBS analysts noted that the BoE is expected to deliver the first 25 basis points (bps) cut in early August and another 25 bps in November, bringing the interest rate to 4.75% by the end of 2024. “The key reason why we expect the MPC to cut rates is the recent data,” said UBS analysts.