British Pound posts modest gains to near 1.3500 ahead of UK GDP data

The British Pound (GBP) experienced a slight increase, reaching near 1.3500 against the US Dollar (USD) during early Asian trading hours on Thursday. A less-than-expected report on US inflation eased the value of the USD. Traders are watching the preliminary UK Gross Domestic Product (GDP) figures for the second quarter (Q2) and US Producer Price Index (PPI) data, both due later on Thursday.

Earlier, an inflation report showed a moderate slowdown in prices across various goods and services, suggesting less likelihood of a US Federal Reserve (Fed) interest rate hike in the coming month. The US Consumer Price Index (CPI) rose by 3.4% year-over-year (YoY) in July, similar to the 3.5% growth in the previous month, according to the Bureau of Labor Statistics.

Meanwhile, the core CPI, which excludes food and energy, increased by 2.5% YoY in July, compared to a 2.6% rise in June. Both figures matched market expectations. On a monthly basis, both headline and core CPI inflation rates grew by 0.1% and 0.2%, respectively, in July. Analysts have lowered the odds of a September interest rate hike, now at 40%, according to the CME FedWatch tool.

Fed officials will review August CPI and employment figures before their September meeting. The UK Q2 GDP data will be the main focus later on Thursday. The UK economy is expected to expand by 0.4% quarter-over-quarter (QoQ) in Q2 after a robust 0.6% growth in Q1. A stronger-than-expected report could offer some support to the GBP.

UK Prime Minister Andy Burnham cautioned that the UK economy might only grow by a minimal 0.3% in 2027 if tensions in the Strait of Hormuz persist until the end of 2026. Scotiabank strategists point out that the recent GBP move is occurring in a relatively quiet environment dominated by limited fundamental releases. The focus is now shifting to the upcoming UK data, which includes the preliminary Q2 GDP figures and monthly trade and industrial production data, which could serve as the next significant catalyst for the GBP's price movement.