British Pound surges as hot US PPI fails to revive Fed hike bets

The British Pound (GBP) experienced a notable surge against the US Dollar (USD) on Thursday, despite the release of US inflation data that did not trigger expectations of an October Federal Reserve rate hike. The GBP/USD exchange rate rose to 1.3267, marking a 0.56% increase from its previous level of 1.3184. The US Producer Price Index (PPI) for September came in at 6.3% year-over-year, surpassing expectations of 5.3%, and grew 1.3% month-over-month, exceeding forecasts of 0.5%.

This was the highest level for the PPI since March 2022. The core PPI, excluding food and energy, increased from 4.8% to 5% YoY and 0.7% MoM, also outperforming expectations. US retail sales softened from 1.3% to 0.8% MoM but exceeded analysts' projections of 0.3%. Initial jobless claims for the week ending October 10 stood at 199K, lower than the 200K forecast.

The absence of further tightening expectations for the October meeting caught investors off guard, as the odds of a 25-basis-point rate hike dropped to 26% from a previous high of 60% on the previous day. Money markets now estimate a 92% chance of a rate hike by December. Consequently, the US Dollar Index (DXY), which measures the dollar's performance against a basket of six currencies, declined 0.37% to 102.15.

The UK's GDP grew 0.1% MoM in August, outpacing forecasts of a 0.1% contraction as investors anticipate the Autumn Budget announcement. UK Finance Minister John Healey indicated the budget would include measures to bolster the economy's resilience while adhering to fiscal rules. BoE Deputy Governor Sarah Breeden suggested that British companies reducing costs due to high energy prices could ease the central bank's task of curbing inflation.

The Bank of England (BoE) and Federal Reserve (Fed) chairs, Andrew Bailey and Kevin Warsh, prepared to discuss their perspectives. The daily GBP/USD chart displayed a bearish trend, trading below the latest triple simple moving average (SMA) around 1.3421 and trending beneath broken support trend lines that have transformed into resistance.

The technical analysis, assisted by AI, noted the Relative Strength Index (14) at 45.2, below the neutral 50 mark, suggesting weak momentum rather than an oversold condition. Immediate resistance lies at the 1.3284 trend-line break, followed by downward resistance intersecting near 1.3414 and the composite triple SMA cluster close to 1.3421, forming a substantial supply zone.

A daily close above 1.3414/1.3421 could alleviate the current bearish pressure. British Pound showed the strongest performance against the Australian Dollar, while USD/JPY and the US Dollar pulled back amid speculation about Japanese Yen intervention. Gold rebounded, trading near $4,170 per troy ounce, driven by weaker Dollar and lower US Treasury yields, with investors remaining cautious ahead of the Fed's Warsh speech on Friday.