GBP/USD slides as U.S. PPI fuels dollar strength ahead of FOMC

The British pound (GBP/USD) traded slightly lower on Thursday, reversing earlier gains as the U.S. dollar strengthened following stronger-than-expected August producer-price inflation data and the European Central Bank’s rate hike. The pair was down 0.33% at 1.3500 as of 13:20 GMT, following a brief rally to its highest level since August 29, when it had reached 1.3530. Market expectations for further Bank of England tightening remained intact, with analysts pricing in at least two rate hikes by March 2027, though no move was anticipated at the BoE’s next meeting on September 12. The ECB, meanwhile, raised its benchmark rates by 25 basis points, lifting the deposit rate to 2.50%, and raised its inflation forecasts amid prolonged energy price pressures from Middle East conflicts. Brent crude surged past $105 a barrel, reflecting geopolitical risks that have kept inflation risks elevated and complicated the BoE’s policy outlook. Energy accounted for over three-quarters of the monthly increase in U.S. goods prices, with diesel fuel prices rising 24.1% month-on-month. The U.S. Treasury’s $6 billion long-term bond buyback also contributed to dollar strength, reinforcing expectations that the U.S. Federal Reserve may remain cautious ahead of the FOMC meeting next week. Analysts noted that the data supported a more resilient dollar, particularly against currencies sensitive to energy shocks, while the Treasury’s intervention could help sustain the dollar’s response to external pressures, such as higher oil prices and weaker equities. The euro (EUR/USD) also declined, down 0.25% to 1.1601, after briefly gaining earlier in the session. ING FX strategist Francesco Pesole suggested that the ECB’s decision may have prompted some repricing in euro expectations, with the currency potentially testing 1.1600 before moving toward 1.1500 over the coming month.