British Pound feels the heat as hot PPI puts Fed hike in play

The British Pound (GBP) experienced a decline against the US Dollar (USD) on Thursday as the release of the US Producer Price Index (PPI) exceeded estimates, signaling a more hawkish Federal Reserve (Fed). The GBP/USD pair traded at 1.3525, down 0.17%. The US PPI for August remained in line with estimates at 0.4% month-over-month (MoM) but surpassed projections at 5.4% annually, surpassing the 5.3% forecast.

Most core figures followed economist estimates, with the monthly figure falling 0.2% below the 0.3% estimate, aligning with projected annual inflation of 4.6%. Following the data release, traders grew more confident that the Fed would hike interest rates during the September meeting, with the CME FedWatch Tool indicating a 70% chance of a 25-basis-point increase.

The recent surge in energy prices, with Brent reaching over $100 per barrel and WTI nearing the threshold, reflects ongoing Middle East conflict. Labor market data remained robust, with jobless claims at 206K, slightly above estimates but below the previous week's print. Investors are now focusing on the US Consumer Price Index (CPI) report on Friday.

In the UK, Bank of England officials remain divided, with the institution expected to maintain interest rates unchanged at the September 17 meeting, while Governor Bailey opposes further tightening. Traders are also awaiting GDP data on Friday, projected to stagnate at 0%, down from 0.3% MoM in June. Additionally, investors are looking forward to British inflation and wage growth data next week.

As of the daily chart, GBP/USD is trading at 1.3528, holding a slight bullish bias due to its position above clustered simple moving averages at 1.3476 and having reclaimed former trend-line barriers, now acting as support. The Relative Strength Index (14) is slightly above 50, indicating tentative upside momentum but not impulsive.

Support is initially found at the nearby moving-average cluster around 1.3476, bolstered by broken downward and upward trend lines at 1.3467 and 1.3448. A further retracement would expose the earlier resistance trend-line break at 1.3362 as a more distant floor. Conversely, the next significant resistance lies at the upward trendline break near 1.3675, where bulls may face a more substantial test of the emerging uptrend.