GBP/USD rises on Thursday as Greenback loses ground after US PPI

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GBP/USD rises on Thursday as Greenback loses ground after US PPI

GBP/USD climbed back above 1.3100 after the mid-week dip to 1.3000.
US PPI inflation figures did not trigger significant moves but kept Fed interest rate cut hopes alive.
The market sees an overwhelming likelihood of a quarter-point rate cut by the Fed next week.

GBP/USD rallied on Thursday, climbing back above the 1.3100 handle after the greenback eased amid a broad-based increase in risk-on sentiment. Inflation data The US producer price index (PPI) came in around mid-market estimates, failing to provide a concise picture of the drivers of US price growth, but keeping market expectations of an imminent reduction in the Federal Reserve (Fed) rate down.

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Friday will only deliver mid-level consumer inflation expectations from the UK, while US markets will look for another print on the US Michigan consumer sentiment index for September. Markets will look for one last improvement in a key consumer outlook survey before heading to the Fed’s interest rate call next week.

The US PPI rose 0.2% in August and the core PPI rose 0.3% on the month. The headline PPI was forecast to rise to 0.1% from the previous 0.0%, while the core PPI was expected to rise to 0.2% from the -0.2% contraction in July. Despite the near-term pick-up, annualized PPI inflation figures were much more attractive to investors, with annual headline PPI easing to 1.7% from a revised 2.1% in the previous period and ticking below the expected level of 1 .8%. Core annualized PPI also beat the expected print, holding steady at 2.4% versus the expected 2.5% increase.

US initial jobless claims also rose slightly more in the week ended September 6, rising to an expected 230K from a revised 228K the previous week.

With PPI inflation remaining subdued and jobless claims firmly in warm territory, little lies in the way of a first interest rate cut from the Federal Reserve (Fed) on September 18. to kick off the late-start rate cut cycle in 2024. According to CME’s FedWatch tool, rate markets are pricing in a more than 80% chance of a quarter-point Fed cut next week, with 20% still tipping for a cut double initials of 50 bps. Rate traders also overwhelmingly expect the Fed to deliver four cuts in total, with the December rate call expected to land between 425 and 450 bps.

Economic indicator

Producer price index excluding food and energy (annual)

The Food and Energy Producer Price Index, published by the Bureau of Labor Statistics, Department of Labor, measures average price changes in US primary markets by commodity producers in all processing states. Those volatile products such as food and energy are excluded to achieve an accurate calculation. Generally, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).

GBP/USD Price Forecast

GBP/USD took advantage of Thursday’s weakness in the greenback, climbing back above the 1.3100 handle after falling below the key figure earlier this week. Cable stopped the bleeding midweek, bounding just north of the 1.3000 round figure.

Price action continues to tilt firmly to the bullish side, with offers trading well above the 50-day exponential moving average (EMA) at 1.2970. Short pressure continued to bid below recent multi-year highs just north of 1.3250, however an extended decline to the 200-day EEMA at 1.2757 looks increasingly unlikely.

GBP/USD Daily Chart

Frequently Asked Questions for Pounds Sterling

The British pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all trades, averaging $630 billion per day as of 2022. Its key trading pairs are GBP/USD, aka “Cable”, which represents 11% of FX, GBP/JPY or “The Dragon” as it is known to traders (3%) and EUR/GBP (2%) . The pound sterling is issued by the Bank of England (BoE).

The most important factor influencing the value of the pound sterling is the monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its main objective of “price stability” – a steady inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the BoE will try to control it 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 that economic growth is slowing. In this scenario, the BoE will consider cutting interest rates to reduce credit so that companies borrow more to invest in growth-generating projects.

Data releases measure the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and services PMI 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, it may encourage the BoE to raise interest rates, which will directly strengthen the GBP. Otherwise, if the economic data is weak, the pound is likely to fall.

Another significant release of data for the pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, its currency will only benefit from the additional demand created by foreign buyers looking to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

Vaseline4 weeks ago

0 4 minutes read