Sterling weakens as PPI data improves dollar’s safe-haven appeal

The Pound Sterling fell against the US Dollar in early New York due to hot US Producer Price Index data for February, which dampened the appeal of risk-sensitive assets.

The GBP/USD pair dropped as investors’ risk appetite eased on the expectation that the US PPI would reinforce fears that the Fed could delay plans to reduce interest rates. Currently, markets broadly expect the Fed to make this move in June.

The US Dollar Index rose to 103.00 as easing expectations for the Federal Reserve to reduce interest rates in the June policy meeting improved the safe-haven appeal. Retail Sales data for February failed to meet expectations, with retail sales growing moderately by 0.6% in February from expectations of 0.8%. The Pound Sterling fell below 1.2800 against the US Dollar due to US PPI data for February.

The UK economy returned to growth after falling into a technical recession in the second half of 2023.

However, it is too early to say that the recession was shallow and the economy has come out of it until data for the first quarter as a whole shows an expansion. The Office for Budget Responsibility (OBR) forecasts the UK economy to grow by 0.8% in 2024.

Market expectations for the Bank of England rate cuts will drive the Pound Sterling’s next moves, with investors’ bets for the BoE reducing interest rates in the August meeting strengthening on slower-than-expected wage growth in three months ending January.