British Pound gains ground to near 1.3200 as traders await Burnham's picks

The GBP/USD pair trades with mild gains near 1.3200 during the early European session on Friday. The British Pound (GBP) strengthens against the US Dollar (USD) as markets focus on who might become finance minister under Andy Burnham, and the latest US inflation data has softened expectations for US rate hikes. 

UK Finance Minister Rachel Reeves is expected to be replaced under a Burnham-led administration. Traders focus on who might become finance minister under Andy Burnham, the likely successor to Keir Starmer as Prime Minister. "The obstacles to a Burnham coronation are slowly being cleared, offering sterling support at the margin," said Nick Rees, head of macro analysis at Monex Europe.

Rees said former health secretary Wes Streeting's emergence as the favorite to become her successor, as reported by some media outlets, was likely to support sterling. "That said, we are still in the honeymoon period as far as Burnham is concerned, and economic realities remain challenging," he added.

The US Bureau of Economic Analysis (BEA) revealed on Thursday that the US Personal Consumption Expenditures (PCE) Price Index climbed 4.1% YoY in May, compared to 3.3% in April. The annual rate accelerated well above the Fed’s 2% target. 

The core PCE, the Fed’s preferred inflation gauge, rose 3.4% YoY in May, versus 3.3% prior, in line with expectations. This figure registered the highest since October 2023. Both readings came in line with the market expectations. 

Analysts believe that with oil prices falling to pre-war levels on Thursday after the US and Iran signed a preliminary peace deal, inflation likely peaked last month or is ‌close to doing so.  

Markets are now pricing in nearly a 28.9% chance for a hike of at least 25 basis points (bps) at the central bank's July meeting, down from 34.2% in the prior session, according to the CME FedWatch tool. For the September meeting, expectations for a hike dipped to 60.1% from 65.7% on Wednesday.