Pound to Dollar Forecast: GBP Rate Retreats after Strong US PPI

Modified: Thursday, 10 September 2026 16:31 BST - Written by James Fuller

STORY LINK Pound to Dollar Forecast: GBP Rate Retreats after Strong US PPI

The Pound to Dollar (GBP/USD) exchange rate lost ground on Thursday afternoon as stronger US producer-price data boosted expectations of a Federal Reserve rate hike next week.

GBP/USD had traded above 1.3550 earlier in the session, but slipped back towards 1.3530 after the US data, leaving the pair down around 0.15% on the day.

Sterling has nevertheless remained relatively resilient despite renewed pressure across global bond and equity markets, with expectations of further Bank of England tightening continuing to provide some underlying support.

The US Dollar initially struggled to benefit from the deterioration in risk appetite, although it recovered some ground after stronger US producer-price data increased expectations of a Federal Reserve rate hike next week.

According to Scotiabank; “The daily chart reveals a clear bullish trend from June with a sequence of higher lows and higher highs. We note the absence of any material resistance ahead of 1.3650.”

Energy prices remain an important influence.

Brent crude surged to around $105 per barrel on Thursday after a renewed escalation in attacks on Gulf shipping, while European natural gas prices remain close to three-year highs.

The higher energy backdrop is keeping upward pressure on inflation expectations and strengthening the case for tighter monetary policy in both the UK and US.

Danske Bank commented on oil prices; “Supply concerns intensified further overnight after the US said it had destroyed five Iranian oil tankers, while Iran retaliated with strikes on a US-used base in Jordan and vessels near the Strait of Hormuz. Houthi attacks on Saudi energy facilities yesterday also added to supply risks.”

US Inflation Data Revives Dollar Support

The Dollar had remained surprisingly subdued despite higher energy prices and rising US bond yields.

ING commented; “We don't fully understand why the dollar is not reacting to higher energy prices and do not see a strong case for DXY to immediately break support at 98.55/65.”

That picture shifted somewhat on Thursday after US producer prices increased 0.4% in August, in line with monthly expectations, while the annual rate accelerated to 5.4% from 4.8%.

The figures reinforced concerns that renewed energy inflation could complicate the Federal Reserve's policy decision next week.

Markets consequently increased the implied probability of a September rate hike to around 70%.

The US 10-year Treasury yield also climbed towards 4.92%, its highest level since 2023, providing the Dollar with some late-session support.

There has also been growing speculation that the US administration would prefer a weaker Dollar in order to improve trade competitiveness.

Scotiabank commented; “Aside perhaps from the JPY, there is little to suggest that the major currencies are misaligned but talking the USD down might help address the administration’s trade concerns.”

It added; “A weaker USD could be disruptive for capital flows at a time when investors appear to be more sensitive to US sovereign credit risk.”

The bank considers recent commentary more likely to represent political signalling than a clear change in currency policy.

BoE Expectations Keep Sterling Supported

Domestically, expectations of further Bank of England tightening continue to provide important support for Sterling.

Markets see very little chance of a rate increase at next week's meeting, but around 17 basis points of tightening are priced for November and approximately 32 basis points by December.

Scotiabank commented; “The firming in BoE tightening expectations is providing fundamental support for the pound and offering an additional tailwind to the broader, sentiment-driven recovery that began in March and continued through the arrival of PM Burnham.”

Higher oil and gas prices could strengthen the case for further BoE action if they feed into household inflation and wage demands.

The Pound's ability to benefit from higher yields is not unlimited, however.

A further surge in gilt yields could increase concerns over government debt-servicing costs and the fiscal outlook ahead of the October Budget.

For GBP/USD, the 1.3650 area remains the main upside resistance level.

A sustained break above this level would strengthen the bullish trend and bring the late-August highs back into focus.

On the downside, the 1.3480-1.3500 area remains important support.

Near-term direction is likely to depend heavily on Friday's US CPI release, which could either cement expectations of a Fed hike or trigger another reversal in Dollar sentiment.

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TAGS: Pound Dollar Forecasts