British Pound shakes off US CPI jolt as UK growth steals spotlight

• GBP/USD rebounds from CPI dip as Dollar strength fades.
• Fed hike odds jump to 88% after inline inflation.
• UK GDP beat helps Sterling steady before BoE decision.

The Pound Sterling climbs against the US Dollar, up 0.10%, as the latest US consumer inflation report came in line with forecasts, and although money markets had increased the odds of a Fed rate hike next week, traders faded the initial reaction. The GBP/USD trades back at 1.3524, after dipping to around 1.3470 on the CPI release.

GBP/USD recovers after US CPI as UK GDP surprises higher

The US Consumer Price Index (CPI) in August rose 0.4% MoM and, on an annual basis, expanded by 3.4%, with both figures matching forecasts. Core CPI rose 0.3% above estimates of 0.2% and in the twelve months to August stood at 2.4%, unchanged from July’s number and aligned with forecasts.

The market’s initial reaction was to Dollar strength, but so far, most G8 FX currencies have recovered. The US Dollar Index (DXY), which measures the buck’s value against a basket of six currencies, clings to 99.00, down a minimal 0.05%.

Money markets are pricing in a 88% chance that the Fed will increase its Fed funds rate by 25 basis points to the 3.75%-4% range, according to Prime Terminal. A day ago, the odds were close to 60%.

In the meantime, US households are growing less optimistic about the economy, as shown by the University of Michigan Consumer Sentiment survey for September, with the index falling from 51.7 to 47.8, missing forecasts of a 51 reading.  Joanne Hsu, the survey’s director, commented that “With ​a resurgence in fuel prices and ​trade tensions, consumers anticipate greater pressures on their pocketbooks ‌to ⁠come.”

Inflation expectations jumped sharply: for one year, to 4.6% from 4%, and for five years, ticked up a tenth, from 3.3% to 3.4%.

In the UK, Gross Domestic Product (GDP) figures revealed that the economy grew at its fastest pace in 18 months in July, by 1.6% YoY, above Reuters’ estimates of 1.2%, up from the previous reading of 1.1%. On a monthly basis, GDP grew 0.4%, exceeding projections of 0% and up from June 0.3%

Given the backdrop, money markets expect the Bank of England (BoE) to leave rates unchanged, despite the UK’s status as a net energy importer. On Tuesday, BoE Governor Andrew Bailey stated that, while markets anticipate further tightening, he aimed to clarify that rate hikes are not imminent.

Next week, traders' eyes are on the Federal Reserve monetary policy decision on September 16, followed by the BoE on September 17.

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3525, holding a constructive bullish bias as price stays above a dense band of technical supports. The pair sits over the latest simple moving average cluster around 1.3479 and clings to the rising trend-line support from 1.3140 near 1.3459, while prior descending trend barriers around 1.3466 and the earlier 1.3360 break area now underpin the market. The Relative Strength Index (14) near 50 suggests neutral momentum, hinting that bulls are defending the floor but lack strong directional conviction for now.

On the downside, immediate support is located at the current price area of 1.3525, with secondary demand emerging from the moving average region around 1.3479 and the nearby trend-line supports clustered between 1.3466 and 1.3459, ahead of the former breakout zone at 1.3360. On the topside, the next notable resistance is the rising trend-line barrier coming in around 1.3678; a daily close above this level would strengthen the bullish outlook and open the way toward higher highs, while failure to clear it would keep GBP/USD confined to its current consolidation band. (The technical analysis of this story was written with the help of an AI tool. Know more.)