GBP/USD rebounds to hold firm to congestion ahead of key US PPI inflation

GBP/USD pared previous losses to hold tightly to the 1.3550 level on Wednesday.
Mid-tier UK data smattered across the data docket on Thursday.
US business-level PPI inflation figures are due on Thursday after cool CPI print.

Joshua Gibson FXStreet

GBP/USD found some bullish tailwinds on Wednesday, erasing the previous session’s gains and climbing back into the 1.3550 level. Cooler-than-expected US Consumer Price Index (CPI) inflation figures from the initial post-tariff reference period bolstered investor hopes for Federal Reserve (Fed) interest rate cuts later this year, and US Producer Price Index (PPI) business-level inflation will follow up on Thursday.

UK economic data remains limited through this week. A monthly Gross Domestic Product (GDP) update from April is due on Thursday; however, the backdated growth figures are from April and are unlikely to have a material impact. UK Industrial and Manufacturing Production data is also due on Thursday, and is broadly expected to begrudgingly hold in contraction territory.

On the American side of the Atlantic, US PPI inflation data is due on Thursday. Core US PPI business-level inflation through the year ended in May is expected to hold flat at 3.1% YoY.

After two days of private trade talks held in London, delegates from the Trump administration and the Chinese government have reached a preliminary trade policy framework, which now heads to the respective desks of Presidents Trump and Xi. According to social media posts by President Trump, tariffs on Chinese goods are being held at 55%, with China maintaining its 10% import tax on all American-made goods.

GBP/USD price forecast

The GBP/USD currency pair has experienced a withdrawal from its multi-year highs; nevertheless, interest in Cable remains robust. The pair maintains stability within a short-term consolidation range near 1.3500 and continues to demonstrate a pronounced bullish inclination, with prices significantly surpassing the 200-day Exponential Moving Average (EMA), which is situated near 1.2960.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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