• GBP/USD falls after core PPI jumps to 3.6%, supporting a less dovish Federal Reserve outlook.
• Middle East tensions linked to Donald Trump add safe-haven bid to the US Dollar.
• Political pressure on Keir Starmer and BoE cut odds cap Sterling rebounds.

The Pound Sterling (GBP) drops some 0.10% on Friday as the Greenback is underpinned by a hot inflation report in the US, which prompted investors to price in a less dovish Federal Reserve (Fed). Also heightened risks in the Middle East weighed on the GBP/USD pair, which trades at 1.3469 at the time of writing.

Sterling eases as firm US inflation data tempers Fed cut bets and risk sentiment deteriorates

Risk appetite has taken a toll as the AI hype seems to have faded, as depicted by the S&P 500, which is headed towards its worst month since March 2025. In the US, the core Producer Price Index (PPI) in January exceeded estimates of 3%, expanding by 3.6% YoY, up from 3.3% in December. Headline PPI dipped from 3% to 2.9% YoY but missed forecasts for a more pronounced drop to 2.6%.

Even though inflation jumped —due to tariffs as the PPI suggests that trade services rose 2.5%, expectations that the Federal Reserve will reduce rates remain unchanged. Money markets are projecting 56 basis points of easing towards the year-end, according to Prime Market Terminal data.

Geopolitical risks are increasing

Tensions in the Middle East remain high, amid growing speculation that the US authorized the departure of some embassy personnel and families in Israel and Baghdad.

US President Donald Trump said that he hasn’t decided on Iran but stressed that he is not happy with how they negotiate. When asked about using military force, he said, “I don’t want to, but sometimes you have to.”

Across the pond, local elections are exerting pressure on Prime Minister Keir Starmer. Britain’s left-wing Green Party won in an area of Manchester mostly dominated by Starmer’s Labour Party for almost a century.

So far, the GBP has shrugged off domestic political turmoil surrounding Starmer, capped by hawkish comments by Bank of England (BoE) Chief Economist Huw Pill. He commented that declines in headline inflation caused by temporary factors should not create a false sense of safety.

Nevertheless, money markets odds for a BoE rate cut in March remain at 84%, with the UK central bank expected to reduce rates by 25 basis points.

Next week, UK/US economic calendar

The UK economic docket will be light, with a speech by BoE David Ramsden. In the US, the schedule is busy, with the release of the ISM Manufacturing and Services PMI, Fed speeches, Retail Sales and Nonfarm Payrolls.

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3470. Price action sits between an ascending support trend line from 1.3035 and a descending resistance line from 1.3869, leaving the near-term bias neutral with a slight downside tilt as the pair holds below the latter. The cluster of simple moving averages around 1.3500 caps upside attempts, indicating a fading bullish impulse after the mid-month highs near 1.3800. At the same time, the still-rising longer averages and intact rising trend line argue against an outright bearish call, framing current trade as consolidation within a broader uptrend.

Initial resistance is aligned with the descending trend line and nearby moving averages around 1.3530/1.3560, and a daily close above this band would open the way toward 1.3630 and the 1.3680 zone, where previous highs stalled. On the downside, immediate support emerges near 1.3450, followed by the recent lows around 1.3400, with a break there exposing the rising trend-line area toward 1.3360. A sustained move below that structural floor would negate the broader bullish structure and signal scope for a deeper pullback toward 1.3300.

(The technical analysis of this story was written with the help of an AI tool.)