GBP/USD consolidates its gains above 1.2580, all eyes on US CPI data

May 15, 2024 2:16 am

  • GBP/USD takes a breather near 1.2590 in Wednesday’s early Asian session. 
  • The US PPI came in line with expectations, rising by 2.2% YoY in April, compared to the 1.8% increase in March. 
  • The UK Unemployment Rate rose to 4.3%, and private-sector wage growth slowed. 

The GBP/USD pair consolidates its gains around 1.2590 during the early Asian session on Wednesday. The major pair holds above the key 100-day Exponential Moving Average (EMA) but remains capped under the 1.2600 hurdle. The US Consumer Price Index and Retail Sales report for April will be in the spotlight. Also, the Fed’s Kashkari and Bowman are due to speak.

Wholesale inflation, as measured by the Producer Price Index (PPI), hit its highest rate in a year, the Bureau of Labor Statistics showed Tuesday. The US PPI figure rose 2.2% on a yearly basis in April, compared to the 1.8% increase recorded in March (revised from 2.1%), and came in line with the estimation. The Core PPI, which excludes food and energy costs, climbed 2.4% YoY in the same period, compared to an increase of 2.1% in the previous reading and matching the expectation. On a monthly basis, the PPI and the core PPI both rose 0.5% MoM in April.

The US Federal Reserve (Fed) said on Tuesday that the April PPI provides more justification to keep rates higher for longer, but it does not necessarily mean the Fed will need to hike again. Meanwhile, Cleveland Fed President Loretta Mester stated that she would still like the central bank to start tapering asset purchases this year, adding that the Fed is in a “really good place” to study the economy before charting the rate path. 

Investors await the US CPI inflation data on Wednesday for fresh impetus. The hotter-than-expected inflation reading could dampen hope for a Fed rate cut this year and boost the Greenback against the Pound Sterling (GBP). 

On the other hand, the UK employment reports showed signs of cooling, which prompted the expectation that the Bank of England (BoE) might cut interest rates in the coming months. The ILO Unemployment Rate rose to 4.3% in three months to March from 4.2% in the previous reading, the highest since last summer. While overall wage growth excluding bonuses, remained unchanged at 6.0% in the same reporting period,. The UK Employment Change arrived at -177K in the three months to March, versus a -156K decrease in the previous reading, the UK Office for National Statistics reported on Tuesday. 

The financial markets expect the BoE to cut rates before the Fed as early as June or August. This, in turn, might weigh on the Cable and cap the upside of the GBP/USD pair in the near term. 

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