- GBP/USD saw modest gains on Wednesday while participants wait for the upcoming inflation report.
- US PPI inflation moderated in August, casting a favorable light on the Fed’s upcoming decision.
- US CPI inflation is set for release on Thursday, which may complicate the Fed’s path regarding future rate reductions.
On Wednesday, GBP/USD made a slight bullish advance, hovering around the 1.3550 mark. This marks the fourth day of such movement, but further progress remains elusive. Inflation, as reflected in the US Producer Price Index (PPI), dropped in August—supporting market speculations regarding the Federal Reserve’s actions on September 17th.
The PPI’s core inflation fell more sharply than anticipated, showing a 2.8% year-on-year decrease, while the overall figure settled at 3.5%. This cooling of inflation is somewhat expected in the current economic context. The PPI specifically excludes imported goods, offering a snapshot of domestic price pressures in the US.
With changes in small shipping and retailer de minimis exemptions, American consumers are now more likely to shoulder the impact of import fees associated with various tariffs on foreign goods. The Consumer Price Index (CPI) inflation data is set for Thursday. Predicted CPI head inflation could rise to around 2.9% for the year ending in August, while core CPI is expected to hold steady at 3.1%, significantly above the Fed’s target of 2%.
According to the CME’s FedWatch tool, the market is currently pricing in a better than 90% chance of a 25 basis point cut from the Fed next week.
GBP/USD Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP) is the world’s oldest currency, dating back to 886 AD, and serves as the official currency of Britain. In 2022, it was the fourth most traded currency globally, responsible for 12% of forex transactions, equating to an average daily volume of $630 billion. GBP/USD, often referred to as “cable,” is its main trading pair, accounting for 11% of forex, alongside GBP/JPY, known as “dragon” (3%), and EUR/GBP (2%). The Bank of England (BOE) issues Pound Sterling.
The value of the pound is primarily influenced by monetary policy set by the Bank of England. The BOE aims for a stable inflation rate around 2%. When inflation exceeds that target, the BOE typically raises interest rates, making borrowing more expensive—a move that could bolster GBP’s attractiveness to investors. Conversely, if inflation is too low and growth falters, the BOE may reduce rates to encourage borrowing and spending.
Economic indicators such as GDP, PMI for manufacturing and services, and employment figures can significantly influence the pound’s value. A strong economy generally supports an appreciating pound, attracting foreign investment and potentially leading to interest rate hikes by the BOE, which is favorable for GBP. On the flip side, weak data can lead to a depreciation.
Another crucial metric for the pound is the trade balance, which indicates the difference between a country’s exports and imports. A strong export sector can bolster demand for the currency, leading to an appreciation. Conversely, a negative trade balance could weaken it.
