Pound Sterling finds cushion below 1.2800 after soft US PPI report


  • The Pound Sterling edges lower against the USD as the Fed scales back to fewer rate-cut projections.
  • UK’s economic recovery halts as factory and construction activities decline.
  • Investors await the May US Producer Price Index for fresh guidance.

The Pound Sterling (GBP) finds support below the crucial support of 1.2800 against the US Dollar (USD) in Thursday’s American session. The GBP/USD pair finds cushion after the United States (US) Bureau of Labor Statistics (BLS) reported a cooler US Producer Price Index (PPI) report for May, which has prompted expectations of the Federal Reserve (Fed) returning to policy normalization from the September meeting. Market speculation for Fed rate cuts grew sharply on Wednesday too after the release of the cooler-than-expected Consumer Price Index (CPI) report for May.

However, the major is still under pressure as the US Dollar holds intraday gains. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades near 104.90, up 0.15% from Wednesday's close. 

The PPI report showed that annual headline producer inflation surprisingly decelerated to 2.2% against expectations of 2.5% and April's reading of 2.3%, upwardly revised from 2.2%. In the same period, the core reading, which excludes volatile food and energy prices, grew at a slower pace of 2.3% from the estimates and the prior release of 2.4%. The monthly headline PPI contracted by 0.2%, and the core reading was unchanged.

The near-term outlook remains uncertain as the Fed's hawkish narrative. Latest interest rate projections from Fed policymakers in the June monetary policy meeting showed that there will be only one rate cut this year, against three anticipated in March. The Fed signaled fewer rate cuts due to robust labor market conditions, and price pressures remained stubbornly higher in the first quarter of the year.

After the Fed kept interest rates unchanged in the range of 5.25%-5.50%, as expected, officials acknowledged that the progress in inflation declining towards the 2% target is slower than they anticipated. The Fed also revised forecast for core Personal Consumption Expenditures Price Index (PCE), which is Fed’s preferred inflation measure, to 2.8% in 2024, up from March’s estimate of 2.6%.

Daily digest market movers: Pound Sterling outperforms other currencies amid sticky UK wage inflation

  • The Pound Sterling is performing strongly against the majority of currencies, except the Euro, despite market speculation for the Bank of England (BoE) to start reducing interest rates in the August or September meeting has grown further. The expectations for BoE rate cuts surged after the United Kingdom (UK) Office for National Statistics (ONS) reported that economic recovery has stalled, as expected, in April.
  • The UK economy remained stagnant in April after expanding 0.4% in March, indicating a subdued start to the second quarter. The economic recovery halted as the positive impact of 0.9% growth in service output was offset by a decline in manufacturing and construction activities by 0.9% and 1.4%, respectively, suggesting under-utilization of overall capacity due to a poor demand environment.
  • Also, the UK’s factory activity report for April showed that Manufacturing and Industrial Production contracted at a faster pace, pointing to slowing economy recovery. This has also weakened claim for parliamentary elections by Prime Minister Rishi Sunak’s Conservative Party who promised a turnaround by improving economy’s health and bringing inflation down.
  • The UK’s labor market has recorded layoffs in the past four months and the Unemployment Rate has risen to 4.4% in three months ending April, while wage growth has remained steadily high. Average Earnings data, which is a wage inflation measure that fuels service inflation, is significantly higher than what is needed for inflation to return to the desired rate of 2%.
  • Going forward, investors will shift focus to the BoE’s interest rate policy, which is scheduled for June 20. The BoE is expected to leave interest rates unchanged. Therefore, investors will keenly focus on any guidance about when the bank is expected to cut rates.

Pound Sterling Price Today:

British Pound PRICE Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.

  GBP USD EUR JPY CAD AUD NZD CHF
GBP   -0.04% -0.00% 0.32% 0.10% 0.21% 0.14% 0.06%
USD 0.04%   0.03% 0.33% 0.12% 0.23% 0.18% 0.09%
EUR 0.00% -0.03%   0.32% 0.09% 0.19% 0.15% 0.04%
JPY -0.32% -0.33% -0.32%   -0.20% -0.09% -0.18% -0.25%
CAD -0.10% -0.12% -0.09% 0.20%   0.11% 0.05% -0.03%
AUD -0.21% -0.23% -0.19% 0.09% -0.11%   -0.07% -0.15%
NZD -0.14% -0.18% -0.15% 0.18% -0.05% 0.07%   -0.08%
CHF -0.06% -0.09% -0.04% 0.25% 0.03% 0.15% 0.08%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Technical Analysis: Pound Sterling holds key 20-DEMA

The Pound Sterling trades inside Wednesday’s trading range. The GBP/USD pair aims to sustain above the 78.6% Fibonacci retracement support at 1.2770, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300.

The 20-day Exponential Moving Average (EMA), which trades around 1.2730, continues to provide support to the Pound Sterling bulls. Also, the 50-day EMA near 1.2670 is sloping higher, suggesting that the near-term trend is still up.

The 14-period Relative Strength Index (RSI) returns to the 60.00-80.00 range and needs to sustain comfortable stability in this range to shift momentum towards the upside.

Economic Indicator

Producer Price Index ex Food & Energy (YoY)

The Producer Price Index ex Food & energy released by the Bureau of Labor statistics, Department of Labor measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Those volatile products such as food and energy are excluded in order to capture an accurate calculation. Generally speaking, a high reading is seen as positive (or bullish) for the USD, whereas a low reading is seen as negative (or bearish).

Read more.

Last release: Thu Jun 13, 2024 12:30

Frequency: Monthly

Actual: 2.3%

Consensus: 2.4%

Previous: 2.4%

Source: US Bureau of Labor Statistics

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

Australian Dollar holds gains ahead of Michigan Consumer Sentiment Index

Australian Dollar holds gains ahead of Michigan Consumer Sentiment Index

The Australian Dollar recovers its losses as soft US inflation data raises expectations of Fed reducing rates. China's Trade Balance for June came in at $99.05 billion, widening from the previous figure of $82.62 billion. Fed’s Goolsbee stated that the US economy appears to be on track to achieve 2% target inflation.

AUD/USD News

EUR/USD: The door appears open to extra gains in the near term

EUR/USD: The door appears open to extra gains in the near term

Another auspicious week saw EUR/USD trade with decent gains and extend its positive streak for the third consecutive week, including a visit to the key 1.0900 region for the first time since early June.

EUR/USD News

Gold turns bullish as US data bolster case for Fed rate cut in September

Gold turns bullish as US data bolster case for Fed rate cut in September

Gold gathered bullish momentum and climbed above $2,400 on broad-based USD weakness. Investors expect the Fed to reduce the policy rate in September after soft inflation data. XAU/USD could target a new all-time high once $2,400 is confirmed as support.

Gold News

Shiba Inu erases losses from past week, eyes 18% gains

Shiba Inu erases losses from past week, eyes 18% gains

Shiba Inu traders are anticipating the roll-out of futures contracts, products like Exchange Traded Funds that could boost the asset’s utility. An IBC report shows the contract is expected to be listed post Monday, July 15.

Read more

Trump Assassination Attempt: Gold, stocks set to decline on Republican sweep speculation Premium

Trump Assassination Attempt: Gold, stocks set to decline on Republican sweep speculation

Fist in the air and on with the fight - that has been the historic picture that former President Donald Trump shortly after he survived an assassination attempt on his life. Trump was injured in his ear but seems to have come out stronger politically from the shocking political violence. 

Read more

Forex MAJORS

Cryptocurrencies

Signatures