**Pound to Dollar (GBP/USD) Forecast: Sterling Slips as Risk Aversion Rises, US PPI Strengthens Dollar**
*Based on original reporting by James Cundy, ExchangeRates.org.uk*
The pound sterling (GBP) experienced pressured trading against the US dollar (USD) in the wake of increased risk aversion across global markets and a stronger-than-expected US producer price index (PPI) print. This article delves into the performance of the GBP/USD pair, the underlying drivers behind recent moves, market sentiment, and the wider implications for the UK’s currency outlook.
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## GBP/USD Latest Price Moves
– GBP/USD slipped below the 1.2700 mark, hitting intraday lows near 1.2670 after the US PPI data release.
– Earlier optimism surrounding sterling faded as market participants turned defensive, spurring safe haven flows to the US dollar.
– The currency cross has since stabilized, but downside risk remains as sentiment across risk assets deteriorates.
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## Key Factors Weighing on Sterling
### 1. Heightened Risk Aversion
A notable driver for the pound’s recent weakness has been a surge in risk aversion. Concerns about the global economy, compounded by slowing Chinese growth and geopolitical uncertainties, have dampened risk appetite. Investors have consequently sought safety in assets like the US dollar and US treasuries.
#### Contributing Risks Include:
– Persistent inflation in major economies raising the specter of higher-for-longer interest rates.
– Escalating tensions in global flashpoints, notably in Asia-Pacific and Eastern Europe.
– Cautious sentiment in equity markets spilling over to currencies, particularly those considered “risk on” such as sterling.
### 2. UK Data Disappointments
The UK economy continues to grapple with growth headwinds, dovetailing with weaker-than-expected economic releases:
– Second-quarter GDP data was modest, with underlying activity remaining subdued.
– Recent manufacturing and construction sector surveys have highlighted declining new orders and weaker sentiment.
– UK labor market data, while still showing some resilience, points to slackening wage growth and rising unemployment.
### 3. Strong US Economic Signals
The dollar’s resurgence has in large part been driven by positive US economic data. This week’s US PPI report proved pivotal.
#### Highlights:
– July’s US PPI rose 0.3 percent month-on-month, outstripping consensus forecasts for a 0.2 percent gain.
– Core PPI, excluding food and energy, also posted a stronger-than-expected increase.
– These figures follow robust US Non-Farm Payrolls data and persistent service sector strength revealed in ISM PMI readings.
A resilient US economy has led money markets to scale back bets for early Federal Reserve rate cuts, further supporting the greenback relative to sterling.
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## Inflation Dynamics: UK vs US
Inflation remains a central theme dictating central bank strategy and currency market flows.
### United Kingdom
– While UK inflation has eased from double-digit highs, it remains elevated compared to the Bank of England’s (BoE) 2 percent target.
– Recent consumer price inflation (CPI) prints suggest a gradual cooling, but sticky core and services inflation add to the BoE’s headaches.
– Policymakers remain cautious. BoE Governor Andrew Bailey has warned against declaring victory over inflation, signaling interest rates will stay restrictive for some time.
### United States
– US inflation, though down from last year’s peaks, has proven “stickier” than anticipated, especially in services.
– The latest PPI data raises questions about whether progress on taming price pressures is stalling.
– Several Federal Reserve officials have emphasized a data-dependent approach, with little immediate appetite to cut rates unless inflation shows sustained improvement.
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## Market Reaction: Dollar’s Safe Haven Appeal
Global investors have retreated to the US dollar in the face of mounting risk aversion. The dollar index (DXY) hit fresh highs for the month
Read more on GBP/USD trading.