British Pound strengthens to near 1.3500 as Fed rate hike bets ease
- GBP/USD gains traction to around 1.3495 in Friday’s early European session.
- US PPI inflation was flat in July, below expectations.
- BoE's Pill said UK growth supports case for higher interest rates.
The GBP/USD pair gathers strength to near 1.3495 during the early European trading hours on Friday. The British Pound (GBP) edges higher against the US Dollar (USD) as cooler-than-expected US consumer and producer price data have limited the Federal Reserve's (Fed) room for further interest rate hikes. Traders will keep an eye on the US July Retail Sales report later on Friday.
Wholesale costs for goods and services in the United States (US) were flat in July, below the market consensus of 0.2% and after falling 0.1% in June, the Bureau of Labor Statistics reported on Thursday.
Additionally, the core Producer Price Index (PPI), which excludes food and energy, increased 0.2% MoM in July, compared to a rise of 0.4% in June, softer than the forecast for a 0.3% gain. On an annual basis, the headline PPI climbed 4.7% YoY in July, while the core PPI rose 4.2% YoY during the same period.
Traders further reduced the odds of a September rate hike from the Fed following signs of softening US inflation pressures. Markets are now pricing a 34.8% probability of a US rate hike at the September meeting, down from 40% immediately after the PPI data, according to the CME FedWatch Tool.
However, geopolitical tensions in the Middle East could boost a safe-haven currency such as the Greenback and act as a headwind for the major pair. A senior Islamic Revolutionary Guards Corps (IRGC) official, Hossein Taeb, said on Thursday that the Strait of Hormuz is "under Iran's control and management" after US President Trump said Washington has "total control" over the waterway, per Fox News.
The UK economy grew by 0.4% QoQ in the second quarter (Q2) of 2026, versus a 0.6% growth in Q1, the Office for National Statistics reported on Thursday. This figure came in line with market expectations. Bank of England (BoE) Chief Economist Huw Pill stated that stronger-than-expected UK economic growth readings reinforced the case for higher borrowing costs to bring inflation back to target.
UK growth outlook clouded by geopolitical risks but activity remains resilient
Societe Generale cautions that “the key risk remains the trajectory of the US-Iran conflict,” highlighting the potential for geopolitical tensions to weigh on the UK outlook. Even so, the bank notes that “so far, UK activity data has proved resilient to the crisis,” with recent indicators suggesting that domestic momentum has, for now, withstood the external shock.
Technical Analysis: GBP/USD maintains a constructive outlook in the near term
In the daily chart, GBP/USD holds above the Bollinger Bands simple moving average (SMA) middle line and the 100-day moving average, which together reinforce a constructive, near-term bullish bias while price approaches the upper Bollinger band resistance. The Relative Strength Index (14) around 59 leans toward positive momentum without yet signaling overbought conditions, suggesting dips may attract buyers while the broader uptrend remains in place.
On the downside, immediate support is seen near the 1.3425 Bollinger SMA middle band, followed by the 100-day moving average at 1.3415, with the lower Bollinger band down at 1.3280 acting as a deeper structural floor if correction extends. On the topside, the upper Bollinger band at 1.3570 is the next notable resistance, where a sustained break would open the door to further gains, while failure to clear this barrier would likely keep GBP/USD consolidating above the current cluster of moving-average support.
(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.