GBP strengthens to near 1.3500 as Fed rate hike bets ease

• GBP/USD gains traction to around 1.3495 in Friday’s early European session.
• US PPI inflation was flat in July, below expectations.
• BoE’s Pill said UK growth supports case for higher interest rates.

The GBP/USD pair gathers strength to near 1.3495 during the early European trading hours on Friday. The British Pound (GBP) edges higher against the US Dollar (USD) as cooler-than-expected US consumer and producer price data have limited the Federal Reserve’s (Fed) room for further interest rate hikes. Traders will keep an eye on the US July Retail Sales report later on Friday. 

Wholesale costs for goods and services in the United States (US) were flat in July, below the market consensus of 0.2% and after falling 0.1% in June, the Bureau of Labor Statistics reported on Thursday. 

Additionally, the core Producer Price Index (PPI), which excludes food and energy, increased 0.2% MoM in July, compared to a rise of 0.4% in June, softer than the forecast for a 0.3% gain. On an annual basis, the headline PPI climbed 4.7% YoY in July, while the core PPI rose 4.2% YoY during the same period. 

Traders further reduced the odds of a September rate hike from the Fed following signs of softening US inflation pressures. Markets are now pricing a 34.8% probability ‌of a US rate hike at the September meeting, down from 40% immediately after the PPI data, according to the CME FedWatch Tool.  

However, geopolitical tensions in the Middle East could boost a safe-haven currency such as the Greenback and act as a headwind for the major pair. A senior Islamic Revolutionary Guards Corps (IRGC) official, Hossein Taeb, said on Thursday that the Strait of Hormuz is “under Iran’s control and management” after US President Trump said Washington has “total control” over the waterway, per Fox News. 

The UK economy grew by 0.4% QoQ in the second quarter (Q2) of 2026, versus a 0.6% growth in Q1, the Office for National Statistics reported on Thursday. This figure came in line with market expectations. Bank of England (BoE) Chief Economist Huw Pill stated ‌that stronger-than-expected UK economic growth readings reinforced the case for higher borrowing costs to bring inflation back to target.

UK growth outlook clouded by geopolitical risks but activity remains resilient

Societe Generale cautions that “the key risk remains the trajectory of the US-Iran conflict,” highlighting the potential for geopolitical tensions to weigh on the UK outlook. Even so, the bank notes that “so far, UK activity data has proved resilient to the crisis,” with recent indicators suggesting that domestic momentum has, for now, withstood the external shock.

Technical Analysis: GBP/USD maintains a constructive outlook in the near term

In the daily chart, GBP/USD holds above the Bollinger Bands simple moving average (SMA) middle line and the 100-day moving average, which together reinforce a constructive, near-term bullish bias while price approaches the upper Bollinger band resistance. The Relative Strength Index (14) around 59 leans toward positive momentum without yet signaling overbought conditions, suggesting dips may attract buyers while the broader uptrend remains in place.

On the downside, immediate support is seen near the 1.3425 Bollinger SMA middle band, followed by the 100-day moving average at 1.3415, with the lower Bollinger band down at 1.3280 acting as a deeper structural floor if correction extends. On the topside, the upper Bollinger band at 1.3570 is the next notable resistance, where a sustained break would open the door to further gains, while failure to clear this barrier would likely keep GBP/USD consolidating above the current cluster of moving-average support.

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