- GBP/USD decreased on Thursday, influenced by a rise in demand for the US dollar.
- US PPI inflation spiked in July, leading to a flight towards dollar safety.
- The market has adjusted its expectations for multiple Federal Reserve rate cuts by the year’s end.
On Thursday, GBP/USD pulled back due to increasing US inflation data, which pushed the US dollar significantly higher. This marked the end of a two-day winning streak for the GBP, with the pair dropping back to around 1.3500 after it had climbed towards 1.3600 earlier.
Even though it dipped slightly—about a third of 1%—GBP/USD remains on the bullish side. It’s comfortably above the 200-day exponential moving average (EMA) near 1.3170, with immediate technical support seen at the 50-day EMA around 1.3440. While momentum was heavily in favor of buyers, there’s a sense that the recent patterns seen in daily candlesticks could be at risk of breaking down.
US inflation rises, expectations for rate cuts diminish
Early Thursday, UK GDP data exceeded many forecasts, showing the UK economy grew 0.1% quarter-over-quarter. Industrial production also bounced back more than anticipated, recovering 0.7% month-over-month in June, even after May’s figure fell to -1.3%.
On the flip side, US producer price index (PPI) inflation surged to a monthly high of 3.3%, with core PPI inflation climbing to 3.7% year-on-year. These rising inflationary pressures have altered expectations for three interest rate cuts from the Federal Reserve by year-end, although the market still prices in at least two cuts. The Fed is expected to raise rates by 25 basis points on September 17.
Looking ahead, US Retail Sales and the University of Michigan Consumer Sentiment Index will be key data points on Friday. Additionally, there are ongoing reports of US President Donald Trump announcing meetings with Russian President Vladimir Putin, which may provide traders with various headlines to consider as the trading week closes. Despite Trump’s claims of being a master negotiator, he has encountered challenges in securing the concessions he desires from other countries.
GBP/USD Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP), the oldest currency still in use today since 886 AD, is the official currency of Britain. According to 2022 data, it’s the fourth most traded currency globally, accounting for 12% of forex transactions, with an average daily volume of $630 billion. Its main trading partner is GBP/USD, known as “cable,” along with GBP/JPY, or “dragon,” and EUR/GBP.
The value of Sterling is primarily influenced by monetary policy dictated by the Bank of England. If inflation rates are too high or too low, the BOE adjusts interest rates accordingly to either curb inflation or stimulate economic growth. Higher rates can attract global investors, enhancing GBP, while lower rates may weaken it.
Economic indicators like GDP, manufacturing and service PMIs, and employment rates can significantly impact Sterling’s value. A healthy economy tends to boost GBP, drawing in foreign investment and potentially leading to interest rate increases.
The trade balance measures the difference between a country’s exports and imports over a set period. A positive trade balance, driven by strong exports, typically strengthens the currency, while a negative balance can weaken it.
