GBP/USD climbs 0.06% as soft US inflation cools Fed hike bets

Soft US inflation on both the consumer and producer side has pushed money markets to price a 60 percent chance the Federal Reserve holds rates at its September meeting.

The dollar slipped 0.14 percent as July inflation cooled, with the consumer price index easing to 3.4 percent year on year and producer prices to 4.7 percent, damping bets on a September Fed hike.

"The market moved back toward record territory after July inflation delivered exactly what markets needed, easing some of the pressure around a September Fed hike," said Stephen Innes, managing partner at SPI Asset Management.

GBP/USD traded at 1.3503, up 0.06 percent, holding above its 50-, 100- and 200-day moving averages clustered near 1.3370. The producer price index fell to 4.7 percent year on year from 5.5 percent, below the 4.9 percent forecast, while core producer prices eased to 4.2 percent. Initial jobless claims for the week ending Aug. 8 rose to 208,000 from 200,000, above the 202,000 estimate.

Money markets now price a 60 percent chance the Fed holds rates at its Sept. 16 meeting, with a slim chance of a 25-basis-point hike. A hold would keep the dollar under pressure and support risk assets, though Brent crude's sustained elevation on unresolved Hormuz tensions could rebuild inflation expectations and revive the tightening debate.

On a month-on-month basis, the consumer price index rose 0.1 percent in July, reversing the 0.4 percent decline in June and marking the first monthly increase since the Middle East conflict began Feb. 28. Core consumer prices rose 0.2 percent month on month after holding flat in June, while the annual core rate eased to 2.5 percent from 2.6 percent. The readings extend a disinflation trend that has brought the annual headline rate down from 3.5 percent in June, though it remains well above the Fed's 2 percent target.

The UK economy grew 0.4 percent quarter on quarter in the second quarter, in line with estimates but a dip from the 0.6 percent expansion in the prior period, keeping the Bank of England's inflation data in focus. The pound's resilience comes as investors weigh mixed UK data against a softer dollar, with the currency holding above the cluster of long-term moving averages that has underpinned its advance since mid-year.

Fed Officials Split on Whether a Hike Is Needed

Cleveland Fed President Beth Hammack said the central bank should raise rates to restrain growth and inflation, noting businesses are "excited to borrow" to fund investment. Richmond Fed President Thomas Barkin called it an "open question" whether a hike is needed, arguing inflationary pressures come from shocks that "should pass."

The dollar index, which tracks the greenback against six major currencies, fell 0.14 percent to 99.83. Lower US interest rates would make dollar-denominated commodities such as crude less expensive for holders of other currencies, a factor that could cushion oil demand even as the DOE's weekly inventory report, due later Thursday, is expected to show crude stockpiles fell by 500,000 barrels during the peak driving season.

Brent crude has remained elevated despite the soft inflation data, with the benchmark holding near record territory as the Strait of Hormuz shipping route stays contested. "Oil is the other wildcard," Innes said. "With Hormuz still unresolved, another sustained rise in crude could quickly rebuild inflation expectations and revive the tightening debate."

On the technical side, GBP/USD faces immediate resistance at the descending trend-line break near 1.3510, followed by the higher upward-support trend line around 1.3575. On the downside, first support sits at the former resistance trend line now turned floor near 1.3425, ahead of the grouped long-term moving averages near 1.3370.

This article is for informational purposes only and does not constitute investment advice.