Sterling weakened against the dollar on Thursday after US producer inflation data came in firmer than expected on the year, shifting rate expectations towards a more hawkish Federal Reserve. GBP/USD was at 1.3525, down 0.17%. The US PPI rose 0.4% month on month in August, while the annual rate printed at 5.4% versus a 5.3% forecast; core PPI was 0.2% on the month against 0.3% estimates and 4.6% year on year. Markets also tracked energy, with Brent moving through $100 a barrel and WTI close to that level as the Middle East conflict entered its seventh month. Weekly jobless claims were 206K, slightly above the 205K forecast and below the prior week.
Attention now turns to Friday’s US CPI release. In the UK, the Bank of England is expected to leave rates unchanged at its 17 September meeting, while UK GDP due Friday is seen flat at 0% after 0.3% month-on-month growth in June, ahead of inflation and wage figures next week. Technically, GBP/USD traded at 1.3528 and remained above a moving-average cluster around 1.3476; support levels were cited at 1.3467 and 1.3448, with 1.3362 lower, while resistance was flagged near 1.3675. The RSI (14) sat just above 50.
Short-Term Derivatives Strategies for GBP/USD
In the coming weeks, we recommend that derivative traders position themselves for increased volatility in the GBP/USD pair by utilizing short-term options strategies. With the CME FedWatch Tool indicating a nearly 70% chance of a 25-basis-point rate hike this month, buying protective puts or setting up bearish vertical spreads can help hedge against further downside. This hawkish shift is heavily supported by the latest US Producer Price Index rising to 5.4% annually, which shows that inflationary pressures are far from defeated.
Energy Markets and GBP/USD Technical Outlook
We also advise traders to look closely at the energy markets, where Brent crude has surged past the $100 per barrel mark due to prolonged geopolitical tensions. Historically, sustained oil prices above $100 have acted as a massive tax on global economic growth while simultaneously keeping headline inflation elevated. For GBP/USD, this creates a classic stagflationary headwind for the UK, especially as British GDP growth is projected to stall at 0%.
From a technical perspective, we suggest keeping a close eye on the immediate support cluster around 1.3476, which aligns with key simple moving averages. If the upcoming US Consumer Price Index print comes in hotter than expected, a break below this 1.3476 floor could quickly open the gates toward 1.3362. Conversely, we believe any short-term rallies toward the 1.3675 resistance level should be viewed as opportunities to establish short positions or write covered calls.
