- The pound saw a slight increase against the US dollar after reaching a peak near 1.3600, primarily impacted by high PPI data from the US.
- Inflation among US producers is rising at the fastest rate in three years due to tariffs, which is bolstering the US dollar.
- Investors are keenly awaiting data on US retail sales and upcoming meetings between Trump and Putin.
The British pound (GBP) climbed back to approximately 1.3560 against the US dollar (USD) on Friday, making up for some losses experienced on Thursday when the dollar rebounded strongly, driven by robust producer price index (PPI) figures from July.
As of this update, the US Dollar Index (DXY), which measures the dollar’s strength against six other currencies, was nearing 97.70 after a rise that brought it close to 98.30 yesterday.
Both the headline and core PPI, excluding volatile items like food and energy, rose by 0.9% for the month, following a flat June. This strong PPI data indicates that many employers are hesitant to absorb tariff impacts, opting instead to pass those costs onto consumers.
The uptick in producer inflation is causing uncertainty among market analysts regarding whether the Federal Reserve will lower interest rates in September.
“This report provides a strong critique of the Fed’s wait-and-see approach to policy adjustments,” noted an analyst at High Frequency Economics.
According to the CME FedWatch tool, traders anticipate that the Fed may lower interest rates in September. The perception of potential rate cuts was reinforced by the absence of significant signs in the July Consumer Price Index (CPI) that would suggest tariffs were affecting prices.
Market analysts suggest that consumer prices have increased moderately since the tariff announcement, as importers shielded consumers from price hikes by building up inventory ahead of the mutual obligations set on the “liberation date.”
An analyst from Oxford Economics commented, “As inventory clears and companies adjust pricing amidst margin pressures, we predict more noticeable signs of inflation driven by tariffs over the long haul.”
Daily Market Movement: Stable Trading for the Pound Sterling
- The pound has been trading steadily as investors await hints regarding potential monetary policy moves from the Bank of England (BOE) for the rest of the year. Many participants hope the BOE will maintain current interest rates as price pressures mount in the UK; the stronger-than-expected GDP data for Q2 could provide some relief to policymakers.
- On Thursday, data from the Office for National Statistics (ONS) indicated the economy grew at a faster pace of 0.3% in the second quarter, exceeding expectations of 0.1% but slowing down from the previous reading of 0.7%.
- Looking ahead, economists express concerns about global trade risks, weak labor demand, and potential tax increases from Prime Minister Rachel Reeves in the fall budget. An economist at RSM UK commented, “We don’t foresee much growth moving forward, as ongoing issues with consumer spending, weak global demand, and tax hikes continue to weigh heavily.”
- For now, investors are gearing up for the UK Consumer Price Index (CPI) data for July, which is set for release on Wednesday.
- At 12:30 PM on Friday, investors will also see the release of US retail sales data for July, with economists predicting a monthly rise of 0.5%, which is a slowdown from the previous rate of 0.6%.
- On a global scale, financial market players are watching meetings between President Trump and Russian leader Putin scheduled for Friday. Trump stated that while he believes Putin is willing to discuss ending the conflict in Ukraine, a peace resolution would likely require a subsequent meeting involving Ukrainian leaders.
Technical Analysis: The Pound Aims Above 1.3600
The pound is targeting around 1.3560 during the European trading session on Friday, recovering from a two-month high of 1.3600 reached on Thursday. The short-term trend for the GBP/USD pair remains positive, as it stays above its 20-day exponential moving average (EMA).
The 14-day relative strength index (RSI) is looking to surpass 60. Should it do so, that could signal a fresh wave of bullish momentum.
On the downside, the low of 1.3400 recorded on August 11 serves as a key support level. Conversely, the peak from July 1, which is just under 1.3790, acts as a crucial barrier.
