UK GDP Beats Expectations as Dollar Holds Firm Ahead of US CPI

UK GDP rose 0.4% in July, beating expectations and extending the previous month’s expansion. Services provided the main contribution to growth, giving investors fresh evidence on the pace of UK economic activity ahead of next week’s Bank of England (BoE) meeting. The data could influence expectations for the timing and likelihood of future BoE rate changes.

The US dollar is holding near its weekly highs after Thursday’s Producer Price Index (PPI) release was followed by an increase in expectations of a September Federal Reserve (Fed) rate hike. The Dollar Index (DXY) has moved back above 99, while US Treasury yields remain elevated. Attention now turns to August Consumer Price Index (CPI) data later today, which could lead investors to reassess the likelihood of a Fed rate hike at next week’s meeting.

The euro remains in focus after the European Central Bank (ECB) raised its deposit facility rate by 25 basis points to 2.50% on Thursday. Market attention is now focused on whether the ECB’s updated projections and policy guidance increase or reduce expectations for further rate hikes, while EUR/USD also remains sensitive to today’s US inflation data.

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GBP: Sterling Steady as Markets Weigh Firmer UK Growth

GBP/USD: 1.3516 | EUR/GBP: 0.8587

UK GDP rose 0.4% in July, compared with expectations for no monthly growth. Output was also 1.6% higher than a year earlier, while growth in the three months to July held at 0.4%, above expectations for a slowdown to 0.3%. The data provides fresh evidence that UK economic activity remained resilient at the start of the third quarter.

Services made the main contribution to July’s expansion, while declines in production and construction limited the overall increase. The mixed sector breakdown means the GDP result may support expectations for continued UK growth without necessarily pointing to broad-based acceleration across the economy.

For the BoE, the data adds another consideration ahead of next week’s policy meeting. A firmer growth picture could reduce concerns about near-term economic weakness, while Brent crude above $105 continues to raise the risk of additional inflation pressure. The BoE currently expects CPI inflation to rise to around 3.2% in October and November, meaning investors will be assessing whether resilient activity and higher energy costs increase the likelihood of further rate increases beyond September.

GBP/USD also remains sensitive to developments in the US. Thursday’s PPI increased expectations of a September Fed rate hike and helped the US dollar recover, while today’s CPI could lead investors to raise or reduce those expectations further. A higher-than-expected CPI reading could provide additional support to the US dollar and place pressure on GBP/USD, while a lower reading could reduce Fed hike expectations.

For EUR/GBP, the UK growth surprise is being assessed alongside Thursday’s ECB rate increase. The pair could therefore be influenced by how investors compare expectations for future BoE and ECB rate changes following this week’s economic and policy developments.

The immediate Sterling focus is now shifting from UK growth towards next week’s BoE meeting, while today’s US CPI remains the main external event for GBP/USD.

Key technical reference levels for GBP/USD: Resistance sits near 1.3542, followed by 1.3675, while Support sits around 1.3476, followed by 1.3448.

Key technical reference levels for EUR/GBP: Resistance sits near 0.8600, followed by 0.8649, while Support sits around 0.8570, followed by 0.8553.

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EUR: EUR/USD Slips as Markets Reprice Further ECB Tightening

EUR/USD: 1.1609

EUR/USD is trading around 1.1609 after slipping following Thursday’s ECB decision. The ECB raised its deposit facility rate by 25 basis points to 2.50%, but the widely expected move provided limited support to the pair as the US dollar strengthened after the latest US inflation data.

Attention has now shifted to what the decision means for the next stage of ECB policy. Updated projections raised the ECB’s inflation forecast for 2027 to 2.5%, while growth forecasts for 2026 and 2027 were also revised higher. President Christine Lagarde said inflation is expected to remain above target for an extended period, while the ECB retained a data-dependent approach to future decisions.

Those changes have increased expectations that Thursday’s move may not be the final rate increase of the year. Interest-rate markets now imply a high probability of another ECB hike in December, although that pricing remains sensitive to incoming inflation data, energy prices and the wider economic backdrop.

For EUR/USD, today’s US CPI is the next major external influence. A higher-than-expected reading could increase expectations of a September Fed rate hike and provide further support to the US dollar, potentially placing additional pressure on EUR/USD. A lower-than-expected reading could reduce those expectations and allow markets to place greater weight on the prospect of further ECB tightening.

The immediate direction in EUR/USD may therefore depend on how investors compare the likelihood and timing of further ECB and Fed rate increases after today’s US inflation data.

Key technical reference levels for EUR/USD: Resistance sits near 1.1625, followed by 1.1709, while Support sits around 1.1580, followed by 1.1531.

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USD: DXY Holds Above 99 as CPI Tests Fed Hike Pricing

DXY: 99.05

DXY is holding around 99.05, close to its highest level of the week, after Thursday’s PPI release was followed by higher expectations of a September Fed rate hike. August PPI rose 0.4% month on month, while the US 10-year Treasury yield subsequently moved towards 5%.

Interest-rate markets now imply roughly a 71% probability of a 25-basis-point Fed rate hike next week, up from about 61% before Thursday’s market moves. At the same time, the US 10-year Treasury yield has risen to around 4.96%, bringing the 5% level into focus as investors reassess the likely path of US interest rates.

August CPI is therefore the main test for current Fed pricing. Headline CPI is expected to rise 0.4% month on month and 3.4% year on year, while Core CPI is expected to increase 0.2% month on month and 2.4% year on year. A reading above expectations could increase the likelihood of a September Fed rate hike and provide further support to the US dollar. A lower-than-expected reading could reduce those expectations and place pressure on DXY.

The CPI breakdown will also matter. Investors will be looking at whether price pressures are concentrated in energy-related components or are becoming more persistent across underlying categories, as this could influence how the Fed assesses inflation before its 15-16 September meeting.

The immediate USD focus is therefore on whether today’s CPI confirms the recent increase in Fed rate-hike expectations or gives investors reason to reduce them. With DXY above 99 and Treasury yields close to 5%, the data could influence the near-term direction of the US dollar.

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Other Currencies: Dollar Recovery Shows Mixed Impact Across Major Pairs

AUD/USD: 0.7167 | NZD/USD: 0.5827 | USD/JPY: 154.11 | GBP/JPY: 208.00

AUD/USD and NZD/USD remain below the levels seen earlier this week after the US dollar recovered following Thursday’s US inflation data. Their recent pullback is consistent with the broader improvement in DXY, although both pairs have stabilised ahead of today’s CPI release.

USD/JPY has eased modestly even as DXY remains above 99, showing that the recent US dollar recovery has not been uniform across all major pairs. This keeps today’s US CPI important for assessing whether higher Fed rate-hike expectations lead to broader US dollar gains or whether the reaction remains uneven.

GBP/JPY is trading near 208.00 following this morning’s stronger UK GDP release. The cross provides an additional indication of how Sterling is trading after the UK growth surprise, while GBP/USD remains more directly exposed to today’s US inflation data.

The broader picture across these pairs is therefore mixed. The US dollar has recovered against AUD and NZD, while its gains are less evident against JPY. Sterling’s performance is also being supported by fresh UK growth data, leaving US CPI as the next major event capable of changing the relative direction of these pairs.

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Current Rate Table

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Market Lookahead

Fri, Sep 11

• US Consumer Price Index (CPI) & Core CPI (Aug)

Mon, Sep 14

• Canada Consumer Price Index (CPI) & Core CPI (Aug)

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