The British pound extended its losses against the U.S. dollar after elevated U.S. inflation data strengthened expectations that the Federal Reserve will keep interest rates at high levels for a longer period, while political uncertainty in the United Kingdom continued to weigh on investor sentiment toward the British currency.
GBP/USD fell 0.36% to 1.3493, while EUR/USD declined 0.28% to 1.1705, as demand for the U.S. dollar widened across global foreign exchange markets.
The dollar’s gains came after the release of U.S. producer price index data for April, which came in well above expectations, adding to inflation concerns following the strong consumer price data released earlier in the week.
The data showed that headline producer prices rose 1.4% month on month, compared with expectations of 0.5%, while the annual rate accelerated to 6% from 4% previously. Core producer prices also increased 1% month on month, compared with expectations of 0.3%, lifting the annual rate to 5.2% versus forecasts of 4.3%.
Markets viewed these figures as evidence that inflationary pressures remain persistent within the U.S. economy, prompting investors to reduce bets on a near term rate cut, while beginning to price in rising chances of an additional interest rate increase in the coming period.
The strong inflation data helped push U.S. Treasury yields higher and supported the dollar, while investors await whether the Federal Reserve will move toward a more restrictive monetary policy stance in its upcoming meetings.
ING noted that recent inflation surprises pushed futures rate pricing to its highest levels since the beginning of 2025, reflecting growing expectations that restrictive monetary policy may last longer than previously anticipated.
On the political front, attention turned to U.S. President Donald Trump’s visit to Beijing for talks with Chinese President Xi Jinping, with expectations that trade issues would dominate the discussions alongside the Iranian file. Markets are watching the summit for signs of improved relations between Washington and Beijing or potential trade agreements that could affect global growth expectations and risk appetite.
In the United Kingdom, pressure on sterling persisted amid rising speculation over the future of Prime Minister Keir Starmer, with investors remaining cautious toward any political developments that could negatively affect confidence in British assets.
Meanwhile, the euro remained under pressure as U.S. yields rose and the dollar stayed strong, despite relatively stable economic data in the eurozone. ING also indicated that continued gains in oil prices and widening global inflation concerns could add pressure on the euro and other major currencies against the dollar, especially if investor appetite for equity markets weakens.
Currency markets are now focused on inflation data, central bank expectations, and geopolitical developments, while monitoring whether price pressures and higher energy costs will push policymakers toward more restrictive monetary positions.
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