GBP/USD was supported by weak US PPI despite rising UK unemployment

• GBP/USD gained three quarters of a percent on Tuesday.
• The drop in US PPI inflation numbers sent the greenback lower.
• UK jobless claims have risen to their highest level since the pandemic.

GBP/USD hit a two-week high on Tuesday, reaching a session high of 1.2873 after market sentiment found the buy button. US producer price index (PPI) inflation cooled more than expected, prompting a number of bets on a higher pace of interest rate cuts from the Federal Reserve (Fed) in September, while cable traders rejected a multi-year peak in UK jobless claims.

Forex Today: Rate cut expectations look at US inflation data

Consumer Price Index (CPI) inflation figures are released on both sides of the Atlantic on Wednesday. UK core CPI inflation is expected to fall to 3.4% year-on-year in July from 3.5%. On the US side, markets are banking on a continued cooling in US inflation numbers, with US core CPI for the year to July expected to fall to 3.2% from 3.3% previously.

Despite a broad market pivot on hopes of a Fed rate cut following lower inflation figures, Britain is staring down the barrel of a declining employment landscape. July’s claim change saw 135,000 new jobless claims, nearly ten times the 14,500 forecast and more than four times the previous month’s figure of 32,300. It’s the worst print in UK jobless claims since the 2020 pandemic shut down most of the country, and pound traders will be eyeing Friday’s upcoming UK gross domestic product (GDP) with more trepidation than expected.

US PPI inflation fell to 2.2% from a year ago in July, falling below the expected 2.3% and falling further from the revised 2.7% in the previous period. Core PPI inflation also fell to 2.4% for the year to July, falling below the forecast of 2.7% and well below the previous level of 3.0%. Continued easing of US inflation pressures strengthened risk appetite in the US market session, with market bets on a double 50 basis point cut in September from the Federal Reserve (Fed) rising to 55%, according to the tool CME’s FedWatch.

GBP/USD Price Forecast

GBP/USD is extending a recovery rally after a technical bounce from the 200-day exponential moving average (EMA) last week near 1.2675. Bulls remain in control of the technical charts, but Cable has yet to break through and regain the 1.2900 handle that was lost in mid-July.

The longer-term trend favors bidders as greenback weakness sends sterling higher and a longer-term technical pattern of higher lows keeps bullish momentum on the upside.

GBP/USD Daily Chart