British Pound recovers early losses against US Dollar, US PPI data eyed

The British Pound (GBP) regained some of its early losses against the US Dollar (USD) and settled around 1.3495 during Thursday's European trading session. The GBP/USD pair recovered as the US Dollar faced pressure due to investors focusing more on easing concerns over the Federal Reserve's (Fed) interest rate hikes in the near term, as opposed to ongoing Middle East tensions.

At this time, the US Dollar Index (DXY), which measures the Greenback's value against six major currencies, declined 0.1% to close near 99.90. As traders reduced expectations for Federal Reserve interest rate hikes due to easing US inflation risks and growing labor market concerns, the odds of the Fed leaving policy rates unchanged in the September meeting rose to nearly 60% from 30.4% a month ago.

Analysts from Commerzbank noted that US CPI data for July aligned with expectations, indicating that underlying inflation remained above the Fed's target but showed no broad-based acceleration, providing policymakers with more room to stay on hold. Similarly, Danske Bank research team highlighted that US CPI was broadly in line with expectations, with headline inflation at 3.4% year-over-year (y/y) and core inflation at 2.5% y/y.

The monthly figures were also close to expectations, with headline inflation increasing 0.1% month-over-month (m/m) and core inflation rising 0.2% m/m. This reinforced the view that inflation was moving closer to target-consistent levels without showing signs of renewed upward momentum. Going forward, investors will pay close attention to the US Producer Price Index (PPI) data for July, which is expected to be released at 12:30 GMT.

The headline and core PPI growth are anticipated to have cooled down to 4.9% and 4.2% Year-over-Year (YoY), respectively. The recovery in GBP/USD was driven by the British currency, which gained popularity following the release of Q2 Gross Domestic Product (GDP) data. According to TD Securities, UK GDP exceeded forecasts in June, growing 0.3% month-over-month (m/m) (TD: 0.0%; market: -0.1%; prior: 0.0%), mainly driven by the services sector's expansion of 0.4% m/m (TD/market: 0.0%; prior: 0.1%).

Although the stronger than expected monthly print suggests that UK economy grew in line with market expectations of 0.4% quarter-over-quarter (q/q), which is slightly above the Bank of England's (BoE) projection of 0.3% q/q, this only marginally alters the broader policy outlook. In the daily chart, GBP/USD is trading at 1.3491.

The pair is bullish in the short run as it surpasses the 20-period Exponential Moving Average (EMA) at 1.3441 and breaks above the downward trend line, which now functions as support near 1.3457. The Relative Strength Index (14) at 58.5 remains positive and does not reach overbought levels, signaling steady upside momentum. The recent breakout above the trend barrier is being upheld.

On the downside, immediate support is located between the broken trend line at 1.3457 and the 20-period EMA at 1.3441, with the current price level around 1.3491 acting as a near-term pivot. As long as GBP/USD stays above this support band, bulls may target the pair to consolidate gains and extend the advance, while a daily close below 1.3457 would indicate a false breakout and expose the EMA area as the next line of defense.