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Pound firms near 1.3500 as Fed hike bets cool

Softer US inflation data left traders pricing a 34.8% chance of a September Fed rate hike, down from about 40% right after the PPI release.

Reported · Written up by our desk · Major Pairs

The British pound strengthened against the US dollar in early European trade, with GBP/USD edging to around 1.3495, as cooler-than-expected US consumer and producer price signals reduced expectations for additional Federal Reserve rate hikes, according to FXStreet.

US wholesale costs were flat in July, below the market consensus, and core PPI rose 0.2% month over month, compared with a 0.4% increase in June. On an annual basis, headline PPI increased 4.7% year over year and core PPI rose 4.2% year over year.

Traders also shifted focus to the next US catalyst, with attention on the July Retail Sales report later on Friday. FXStreet noted that the market-implied probability for a September rate hike had fallen to 34.8% from 40% immediately after the PPI data, using the CME FedWatch Tool.

FXStreet added that geopolitical tensions tied to the Middle East could still support safe-haven demand for the greenback, potentially weighing on GBP/USD. The piece also pointed to UK growth data, with UK GDP rising 0.4% quarter over quarter in Q2 versus 0.6% in Q1, and said comments from Bank of England Chief Economist Huw Pill reinforced the case for higher borrowing costs.

Latest closeGBP/USD 1.349 ▼0.2%

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