The British pound held firm against the U.S. dollar, trading near 1.3550 on Friday, as the greenback remained under pressure despite hotter-than-expected U.S. producer inflation data. Sterling has managed to stay above 1.3500 for much of the week, supported by investor skepticism about the dollar’s near-term outlook.
The Relative Strength Index (RSI) on the four-hour chart stood just above 60, suggesting that momentum favors further upside for the pound. However, analysts caution that the pair’s performance hinges on upcoming U.S. data releases.
Resistance is clustered at 1.3590–1.3600, followed by 1.3640 and 1.3700. On the downside, support levels are seen at 1.3540, 1.3500, and 1.3460. Traders note that technical positioning reflects cautious optimism, with buyers reluctant to push the pair higher without a clear catalyst.
U.S. Inflation Complicates Fed Path
Dollar demand briefly improved on Thursday after the Producer Price Index (PPI) rose 3.3% year-over-year in July, well above June’s 2.4% increase and significantly higher than the 2.5% forecast. On a monthly basis, both headline and core PPI climbed 0.9%, underlining persistent inflationary pressures.
The hotter-than-expected figures forced investors to reconsider the Federal Reserve’s policy trajectory. According to CME’s FedWatch Tool, the probability of three quarter-point cuts in 2025 fell to below 45%, down from nearly 55% before the data release.
The shift highlights the challenge facing the Fed: balancing inflation control with slowing growth indicators that have weighed on consumer confidence and business activity.
Key Data to Watch Ahead
With the dollar struggling for direction, traders are focused on upcoming U.S. economic data that could sway sentiment:
- Retail Sales (July): Forecast at +0.5%; a print above 1% may strengthen the dollar.
- Industrial Production: Will offer further insight into U.S. growth momentum.
- Consumer Sentiment (UoM, August): Markets are watching the one-year inflation expectations component closely.
A stronger-than-expected inflation outlook could help the dollar regain footing, potentially dragging GBP/USD lower. Conversely, a weak retail sales report may provide fresh momentum for sterling to extend gains.
For now, the pound’s resilience near 1.3550 reflects both technical strength and investor caution, with markets preparing for volatility as key U.S. indicators come into play.