British Pound holds steady above 1.3500 ahead of US CPI inflation release

The British Pound (GBP) remained relatively stable near 1.3510 in the early Asian trading session on Friday, as market participants opted to observe from the sidelines before the arrival of the crucial US August Consumer Price Index (CPI) inflation data later that day. The Producer Price Index (PPI), which gauges wholesale prices, surged 5.4% year-over-year in August, exceeding the anticipated 5.3% increase.

However, the headline PPI rose by 0.4% on a month-over-month basis, in line with expectations. The core PPI, excluding volatile food and energy prices, increased by 0.2%, slightly less than the forecast. Analysts are closely watching the forthcoming US CPI inflation report on Friday, as it could provide insights into the US interest rate trajectory.

Economists are projecting a headline CPI rise of 3.4% in August, with the core CPI expected to climb by 2.4%. A surge in the inflation figures could strengthen the US Dollar (USD) against the British Pound (GBP) in the short term. The Bank of England (BoE) Governor Andrew Bailey previously emphasized the need to dispel the notion that interest rates will inevitably rise, stating that the decision will depend on economic and geopolitical factors.

The market anticipates a quarter-percentage-point rate hike by the BoE by the end of the year, with two more hikes for 2027, according to Reuters. Scotiabank strategists indicate that upcoming UK data, particularly the jobs and CPI figures, will be crucial in shaping GBP sentiment. They highlight that the BoE meeting on November 5th is likely to see a rate hike of 25 basis points, with short-term rates markets already incorporating approximately 19 basis points of tightening.

Despite fiscal concerns, the overall sentiment towards the GBP remains positive. On the upside, the pair is testing the Bollinger middle band near 1.3560, with the next resistance level at 1.3655. On the downside, the immediate support lies around the lower Bollinger Band at 1.3465, just above the 100-day Simple Moving Average (SMA) at 1.3445. A daily close below this level could weaken the consolidation bias and trigger a deeper correction.