British Pound holds steady above 1.3500 ahead of US CPI inflation release
- GBP/USD flatlines around 1.3510 in Friday’s early Asian session.
- US PPI rose 5.4% YoY in August, higher than the estimate.
- BoE's Bailey pushed back against the idea of a rate hike being inevitable.
The GBP/USD pair trades on a flat note near 1.3510 during the early Asian session on Friday. Traders prefer to wait on the sidelines ahead of the key US August Consumer Price Index (CPI) inflation report later on Friday.
The US Producer Price Index (PPI), a measure of wholesale prices and a gauge of pipeline cost pressures, rose 5.4% YoY in August, compared to 4.8% in July, according to the Bureau of Labor Statistics (BLS) on Thursday. This figure came in hotter than expectations of 5.3%.
On a monthly basis, the headline PPI increased 0.4% in August, in line with market consensus. The core PPI was up 0.2%, slightly softer than the forecast.
Traders await the upcoming US CPI inflation data on Friday as it might offer some hints about the US interest rate path.
Economists expect the headline CPI to show a rise of 3.4% in August, while the core CPI is projected to show an increase of 2.4% during the same period. If the reports show hotter-than-expected outcomes, this could reinforce the Federal Reserve (Fed) rate hike bets and boost the US Dollar (USD) against the British Pound (GBP) in the near term.
Bank of England (BoE) Governor Andrew Bailey said earlier on Tuesday that he wanted to dispel the idea that it's just a matter of time before the central bank raises interest rates, rather than a possibility that hinges on economic and geopolitical developments.
Markets expect one quarter-percentage-point BoE rate hike priced in by the end of this year, and two more for 2027, according to Reuters.
BoE hawkish hold expectations build as UK data and fiscal outlook loom
Strategists at Scotiabank flag that upcoming UK data will be a key catalyst for Sterling, noting that “next week’s jobs and CPI figures offer additional risk into Thursday’s BoE, where policymakers are widely expected to deliver a hawkish hold.” They emphasize that “next week’s BoE is a nonMPR (forecast) meeting, leaving the November 5th rate decision as the next likely meeting for a 25bpt rate hike—with short-term rates markets already pricing ~19bpts of tightening for the decision.” At the same time, Scotiabank highlights that “fiscal concerns remain front and center in terms of sentiment, as we continue to highlight the importance of the budget scheduled for late October,” but they add that “the trend in sentiment remains constructive for the GBP.”
Technical Analysis: GBP/USD retains a neutral tone in the near term
In the daily chart, GBP/USD consolidates in a neutral, range‑bound stance. The pair holds above the 100-day Simple Moving Average (SMA), while intraday price action hovers just over the lower Bollinger Band support, hinting at underlying demand on dips. However, the Bollinger middle band caps the topside together with the upper band and the Relative Strength Index (RSI) around 48 suggests only modest, directionless momentum.
On the upside, initial resistance is located at the Bollinger middle band near 1.3560, with a break there exposing the upper Bollinger Band around 1.3655 as the next barrier. On the downside, immediate support is seen towards the lower Bollinger Band at 1.3465, ahead of the firmer cushion offered by the 100-day SMA at 1.3445; a daily close below this latter level would weaken the current consolidation bias and open the door to a deeper correction.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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