GBP/USD nears 1.3590 as softer US PPI sinks Dollar demand
- Sterling climbs as renewed US-Iran talks lift overall market sentiment.
- Softer US producer inflation data drags the US Dollar to six-week lows.
- Traders now await UK GDP, US jobless claims and central bank speakers.
The Pound Sterling (GBP) advances on Tuesday as traders remain optimistic about a possible resolution to the US-Iran conflict. At the same time, the US Dollar (USD) weakens amid a hot US inflation report that missed forecasts of a higher print. At the time of writing, the GBP/USD pair trades near 1.3590, gaining 0.61%.
Sterling gains on Iran deal hopes as cooling prices hurt the USD
On Tuesday, geopolitics continue to drive price action. Several news agencies reported that the US and Iran are preparing to resume talks, which could happen as early as this week. Meanwhile, a US senior official said that “a lot is happening today and tomorrow the US and Iran have all of the ingredients for a deal, but it’s not all there yet,” according to Fox News.
This weighed on the Greenback’s safe-haven appeal, as shown by the US Dollar Index (DXY). The DXY, which measures the buck’s performance against a basket of six currencies, is down 0.34% at 98.03, at near six-week lows.
Worth noting that the positive correlation between West Texas Intermediate (WTI) Oil and the Greenback is undermining the latter. Further negotiations in the Middle East are pushing WTI lower, with the contract down 4.50% on the day at $93.50 per barrel.
In the meantime, the US Producer Price Index (PPI) in March missed estimates, rising 4% instead of the 4.6% expected, while excluding volatile items, the core PPI expanded at a 3.8% YoY pace, unchanged from February’s print.
Earlier, the ADP Employment Change 4-week average rose by 39.25K, up from 26K in the previous week, highlighting a resilient labor market.
According to Nick Rees, head of macro research at Monex Europe, GBP/USD is expected to underperform as traders return to domestic political issues in the UK.
“We do have those local elections coming up at the beginning of May, and we don’t think markets or indeed a lot of politicians have grasped quite how bad these could be for the Labor Party,” Rees said.
Ahead, traders will eye speeches by central bankers, from the Bank of England and from the Federal Reserve. Economic data releases are expected through Thursday, led by UK GDP. In the US, traders will eye jobless claims data.
GBP/USD Price Forecast: Technical outlook
In the daily chart, GBP/USD trades at 1.3572. The pair holds above the cluster of the 50-, 100- and 200-day simple moving averages (SMAs) around 1.3429, which reinforces a constructive near-term bias as buyers defend the recent rebound. Price remains within the broader contracting structure defined by the rising support and descending resistance trend lines, while the latest advance away from the SMA floor suggests dip-buying interest is still present despite prior caps under the downtrend line.
On the topside, initial resistance is seen near the former support trend-line break around 1.3812, followed by the descending resistance line originating at 1.3869. On the downside, immediate support is located at the 1.3572 area, with the SMA cluster around 1.3429 providing a more important demand zone; a daily close back below that region would weaken the bullish tone and expose a deeper correction within the broader range.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected at 16:50 GMT to say that the core PPI expanded at a 3.8% YoY pace, unchanged from February’s print, and not that the core PPI expanded at a 3.6% YoY pace, up from 3.5%.)
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
