British Pound holds gains above 1.3200 ahead of UK GDP, US PPI releases
- GBP/USD gains ground to near 1.3230 in Thursday’s early Asian session.
- Hotter-than-expected CPI inflation data revived expectations for a Fed rate hike later this month.
- BoE's Pill says he's skeptical about market pricing four rate hikes.
The GBP/USD pair gathers strength to around 1.3230 during the early Asian session on Thursday. The US Dollar (USD) weakens against the British Pound (GBP) despite hotter-than-expected US Consumer Price Index (CPI) inflation data. Traders await the monthly UK Gross Domestic Product (GDP), followed by the US Producer Price Index (PPI) and Retail Sales data later on Thursday.
The headline US CPI rose 0.6% MoM in September after climbing 0.4% in August, the Labor Department’s Bureau of Labor Statistics showed on Wednesday. On an annual basis, the headline CPI inflation climbed to 3.7%, up from 3.4% in the previous reading.
Traders now see a 75.1% chance that the Fed will leave rates unchanged at its October 27-28 meeting, compared with 53% a month ago, while pricing in about 79 basis points (bps) of tightening by late 2027, the CME FedWatch Tool showed.
On the UK’s front, Bank of England (BoE) Chief Economist Huw Pill said on Wednesday that he was more sceptical about market pricing of four increases to borrowing costs by the BoE over the next year.
Nonetheless, several policymakers warned rates might have to go up if the conflict continues. On Tuesday, BoE Governor Andrew Bailey emphasized that pressure on broader inflation had so far been subdued, "but the longer this goes on, the harder it gets.”
Markets are pricing the chance of a quarter-point rate hike by the MPC at its next meeting in November as a near certainty, followed by three more increases by September 2027, according to Reuters.
Sterling firms as UK growth signals support tighter BoE stance
Strategists at Scotiabank note that Sterling is “moderately firmer against the USD,” with gains “merely in line with its core major peers” as policy and growth signals underpin the currency. They highlight comments from BoE MPC member Greene, who said that “faster UK economic growth supported the outlook for tighter monetary policy,” while the IMF has “upgraded the UK growth outlook moderately to 1.3% (from 1.0%) earlier.” The data backdrop will be in focus later this week, with “August GDP data…due Thursday (along with other growth indicators and trade data).”
From a technical perspective, Scotiabank describes the GBP/USD setup as “Neutral – Cable has carved out a well-defined trading range over the past couple of weeks, with firm support emerging below 1.32 while gains have been capped around the upper 1.32/low 1.33 range.” They add that “trend momentum is neutral on the intraday chart, supporting the outlook for more, sideways movement,” and while “broader bearish pressure remains intact” it “may be moderating.” Key levels remain in focus, with “key support is 1.3140/50” cited as an important downside marker.
BoE’s Pill questions pace of future UK rate hikes
BoE’s Pill delivers a moderately hawkish message, with a 7/10 FXS Speechtracker score slightly below the 7.4/10 historic average, as resilience in UK output and the labor market is acknowledged but runaway growth is downplayed. The scepticism about market pricing of four hikes over the next year and the need for more concrete evidence to justify 100bps of tightening signal caution on the speed of further rate increases rather than a strong push for aggressive action.
Comments that an earlier move would have shown the BoE was not “holding and hoping,” and that it is misguided not to react to uncertainty, underline a preference for data-driven tightening in the face of persistent underlying UK inflation that never fell enough pre-Iran shock. Overall, the speech leans slightly hawkish on inflation risks but tempers expectations for rapid UK rate hikes, which may cap immediate upside for the Pound while keeping a floor under rate expectations.
Technical Analysis: GBP/USD keeps a bearish vibe under the 100-day SMA
In the daily chart, GBP/USD retains a bearish near-term tone as spot remains under the 100-day simple moving average (SMA) and below the Bollinger middle band. Price is holding above the lower Bollinger band, suggesting downside pressure is moderated but not exhausted, while the Relative Strength Index (14) around 42.9 stays below the neutral 50 line, hinting at persistently soft momentum rather than oversold conditions.
On the topside, initial resistance emerges at the Bollinger middle band near 1.3255, ahead of a secondary barrier at the upper Bollinger band around 1.3360, with the 100-day SMA at 1.3390 reinforcing a broader supply zone above. On the downside, the lower Bollinger band at 1.3145 provides the first notable support, and a clean break beneath this level would likely open the way to further weakness in the pair.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.