Pound Sterling Strengthens After US PPI-Triggered Sell-Off
The pound (GBP) recovered to near 1.3540 against the US dollar (USD) on Friday, paring Thursday's losses, as the greenback strengthened following the release of the US Producer Price Index (PPI). The US Dollar Index (DXY) fell to around 98.05, although it maintained Thursday's rally from a two-week low of 97.60.
US PPI data for July showed a 0.9% m/m increase for both headline and core—a jump from stagnant levels in June. This surge signals that businesses are beginning to pass on tariff costs down the price chain, raising doubts about the urgency of a major interest rate cut by the Fed in September.
However, according to CME FedWatch, market participants still consider the chances of a 25 bps rate cut in September to be quite high. Analysts at High Frequency Economics believe the Fed's "wait-and-see" stance is appropriate, especially as the labor market shows signs of cooling, while July's CPI data has not yet shown any significant rate transmission.
On the other hand, Oxford Economics analysts (quoted by CBS News) predict that tariff-induced inflation could widen as inventory turnover and price adjustments occur as margins are squeezed. This scenario has the potential to keep the dollar relatively strong and limit the GBP's upside if confirmed by subsequent data.
Looking ahead, attention will be focused on US Retail Sales and consumer inflation expectations in the U.S. of Michigan, as well as comments from Fed officials. From the UK, the release of activity data/BoE comments will also shape the short-term direction of GBP/USD. (ayu)
Source: Newsmaker.id
