US PPI bolsters Fed hawks as British Pound heads for weekly losses

0.90% weekly decline looms for GBP/USD following pullback from 1.3460.
6.5% YoY: US headline PPI reaches its highest since 2022.
90% in sight for December Fed hike odds as BoE tightening expectations also rise.

Nearly 0.90% in weekly losses is in prospect for the British Pound against the US Dollar. Sterling is broadly steady on Friday, trading around 1.3230 with a gain of nearly 0.05%, after the latest US producer inflation reading reached its highest since 2022.

GBP/USD weakens as US inflation fuels Fed hike expectations

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Higher transportation and warehousing prices largely drove October’s US Producer Price Index (PPI) increase to 6.5% YoY. The reading missed forecasts but exceeded September’s 6.3%. At 5%, core PPI, which excludes items such as food and energy, matched estimates and was unchanged from the previous month.

Comments from Federal Reserve (Fed) officials are coming through. Chicago’s Fed President Austan Goolsbee cautioned that the inflation figures point to a worsening trend, which “would make the Fed more aggressive.”

According to the CME FedWatch Tool, money markets had assigned a nearly 90% probability to a 25 basis points Fed rate increase in December. A larger 50-basis-point increase remained a slim possibility, with a 10% chance.

After reaching a weekly peak near 1.3460, GBP/USD retreated under pressure from recent US inflation figures and hawkish Fed commentary. Expectations that the Fed may begin a tightening cycle also weighed on the pair.

Thursday’s UK Gross Domestic Product (GDP) figures met estimates, following the Bank of England (BoE) rate increase last week. Market participants already assign an 85% probability to another move in December.

UK inflation figures are on traders’ radar for next week. In the US, further Fed commentary is due, while Retail Sales and the minutes from the latest Federal Open Market Committee meeting will be the key releases.

GBP/USD Price Forecast: Near-term technical picture.

Chart Analysis GBP/USD — Daily chart for GBP/USD

At 1.3236 on the daily chart, GBP/USD maintains a bearish short-term bias. Spot remains below the latest triple simple moving average (SMA) reading of around 1.3341. Former rising trend-line supports near 1.3360 and 1.3606 now provide overhead resistance. The Relative Strength Index (RSI), at 40.6, remains under its midpoint, suggesting sustained selling pressure rather than oversold conditions. Descending resistance lines drawn from 1.3869 and 1.3653 further suggest that the corrective backdrop continues to limit rallies.

The first upside barrier is the 1.3341–1.3360 cluster, where the triple SMA meets the nearest reclaimed trend support. Beyond that, descending resistance sits around 1.3508 and 1.3544, followed by the higher former support zone near 1.3606. The current dataset identifies no clear structural support immediately below 1.3236. A sustained breach of recent lows would therefore expose the pair to further declines into fresh territory. Sellers would retain control unless the price recovers and holds above the 1.3340–1.3360 range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Pound Sterling: Key questions answered

Pound Sterling: Currency overview

Dating back to 886 AD, the Pound Sterling (GBP) is the world’s oldest currency and serves as the United Kingdom’s official currency. It ranks fourth globally by foreign exchange (FX) trading activity. According to 2022 data, it represents 12% of all transactions, with an average daily value of $630 billion. Among its main pairs, GBP/USD, also called ‘Cable’, accounts for 11% of FX trading. GBP/JPY, known to traders as the ‘Dragon’, represents 3%, while EUR/GBP accounts for 2%. The Bank of England (BoE) issues the Pound Sterling.

Bank of England policy and its effect on Sterling

Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling’s value. Policy decisions hinge on whether the BoE has met its central objective of “price stability” – inflation holding at around 2%. Interest rate adjustments are its main means of pursuing that goal. To curb excessively high inflation, the BoE raises interest rates, increasing borrowing costs for households and businesses. Higher rates generally support GBP by making the UK a more attractive destination for international investment. Inflation that is too low signals a slowdown in economic growth. The BoE will then consider cutting rates to reduce borrowing costs, encouraging businesses to take out more credit for projects that generate growth.

Economic indicators and the Pound’s direction

The Pound Sterling can respond to economic releases because they provide a measure of the economy’s health. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can shape GBP’s direction. Economic strength supports Sterling by drawing in more overseas investment. It may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic figures, by contrast, are likely to weigh on the Pound Sterling.

Trade Balance and its implications for the Pound

The Trade Balance is another important release for the Pound Sterling. Over a specified period, it measures the gap between a country’s export earnings and its spending on imports. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods. A positive net Trade Balance therefore supports the currency, while a negative balance has the opposite effect.