GBP/USD buoyed by soft US PPI despite UK unemployment spike

• GBP/USD gained three-quarters of a percent on Tuesday.
• Softening US PPI inflation figures pelted the Greenback lower.
• UK unemployment claims soared to its highest level since the pandemic.

GBP/USD rallied into a two-week high on Tuesday, rising to a session peak of 1.2873 after market sentiment found the buy button. US Producer Price Index (PPI) inflation cooled more than expected, prompting a rush of bets into a higher pace of rate cuts from the Federal Reserve (Fed) in September, while Cable traders shrugged off a multi-year peak in UK unemployment claims.

Forex Today: Rate cut expectations look at US inflation data

Consumer Price Index (CPI) inflation figures are due on Wednesday on both sides of the Atlantic. Core UK CPI inflation is expected to tick down to 3.4% YoY in July from 3.5%. On US side, markets are banking on a continued cool-off in US inflation figures, with core US CPI for the year ended in July forecast to ease to 3.2% from the previous 3.3%.

Despite a broad-market pivot into hopes for a Fed rate cut on the back of easing inflation figures, the UK is staring down the barrel of a decaying employment landscape. July’s Claimant Count Change registered 135K new unemployment benefits seekers, nearly ten times the forecast 14.5K and more than quadrupling the previous month’s figure of 32.3K. It is the single-worst print of UK unemployment claims since the 2020 pandemic shuttered most of the country, and Pound Sterling traders will be looking ahead to Friday’s upcoming UK Gross Domestic Product (GDP) print with more trepidation than expected.

US PPI inflation eased to 2.2% YoY in July, falling below the expected 2.3% and declining even further from the previous period’s revised 2.7%. Core PPI inflation also declined to 2.4% for the year ended in July, dropping below the forecast 2.7% and falling well below the previous 3.0%. Continued declines in US inflation pressure bolstered risk appetite in the US market session, and market bets of a 50 basis point double-cut in September from the Federal Reserve (Fed) rose to 55%, according to the CME’s FedWatch Tool.

GBP/USD price forecast

GBP/USD is extending a recovery rally after a technical bounce from the 200-day Exponential Moving Average (EMA) last week near 1.2675. Bulls remain in control of the technical charts, but Cable has yet to pierce and recover the 1.2900 handle that was lost in mid-July.

The long-term trend favors bidders as weakness in the Greenback send the Pound Sterling higher, and a long-run technical pattern of higher lows is keeping bullish momentum on the high side.

GBP/USD daily chart