British Pound strengthens above 1.3550, all eyes on US PPI inflation release
- GBP/USD gathers strength to around 1.3555 in Thursday’s early European session.
- US Treasury Department said it will buy back up to $6 billion in longer-term debt.
- Markets still expect the BoE to raise rates this year.
The GBP/USD pair gains traction to near 1.3555 during the early European session on Thursday, bolstered by a weaker US Dollar (USD). Markets might turn cautious later in the day ahead of the release of the US Producer Price Index (PPI) data.
The Greenback attracts some sellers after the report that the Treasury Department said it will buy back up to $6 billion of government debt in an operation aimed at keeping bond markets functioning. The announcement triples the normal buyback operation and follows a statement on August 19 from US Treasury Secretary Scott Bessent that the department would at least double the normal amount for already-issued securities.
Traders await the upcoming Producer Price Index (PPI) data due on Thursday for fresh impetus. Economists expect the headline PPI inflation to rise 5.3% YoY in August from 4.7% in July. The core PPI inflation is projected to increase to 4.6% YoY in August from 4.2% in July. If the reports show hotter-than-expected outcomes, this could reinforce the Federal Reserve (Fed) rate hike bets and lift the USD against the GBP in the near term.
On the Cable’s front, Bank of England (BoE) Governor Andrew Bailey said 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.
Fiscal risks linger as markets await UK budget and key data
Strategists at Scotiabank caution that "fiscal risk remains elevated as market participants look to the release of the UK budget in late October," noting that policy headlines could yet shape sentiment around the Pound. They also point out that, in the near term, the data calendar offers limited guidance, as "we continue to note the absence of any material releases ahead of Friday’s trade and industrial production figures," which are likely to provide the next meaningful read on the UK’s macro backdrop.
Technical Analysis: GBP/USD is well-supported above the 100-day SMA
In the daily chart, GBP/USD holds a modest bullish bias as it trades above the 100-day moving average and remains supported by the lower Bollinger Band, suggesting underlying demand on dips. Price is, however, hovering just under the 20-day Bollinger simple moving average, while the Relative Strength Index (14) around 55 hints at steady but not overstretched upside momentum.
On the topside, immediate resistance is seen at the 20-day Bollinger midline near 1.3565, with a subsequent barrier at the upper Bollinger Band around 1.3655, where recent gains could face stronger supply. On the downside, initial support emerges around the recent lower band region at 1.3472, ahead of the 100-day moving average clustered near 1.3445, and a break below this area would weaken the current constructive tone.
(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.