• The Pound Sterling climbs to near 1.3150 against the US Dollar as traders raise bets for a Fed 50 bps interest rate cut for next week's meeting.
• Slowed US annual PPI for August prompted the Fed’s sizable rate cut prospects.
• Investors expect that the BoE is unlikely to cut interest rates next week.

The Pound Sterling (GBP) extends its recovery to nearly 1.3150 against the US Dollar (USD) in Friday’s London session. The GBP/USD pair gains as the US Dollar (USD) falls sharply after the United States (US) Producer Price Index (PPI) data for August prompted market expectations for the Federal Reserve (Fed) to begin reducing interest rates next week aggressively. 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides further to near 101.00. 

The PPI report showed that the annual headline producer inflation rose by 1.7%, slower than the estimates of 1.8% and July’s print of 2.1%. In the same period, the core PPI – which excludes volatile food and energy prices – grew steadily by 2.4%. Investors expected the core PPI to have accelerated to 2.5%. Meanwhile, the monthly headline and core PPI rose at a faster pace of 0.2% and 0.3%, respectively.

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September has increased sharply to 43% from the 14% before the US PPI data release. 

In Friday’s session, investors will focus on the preliminary Michigan Consumer Sentiment Index data for September. The sentiment data is estimated to have remained almost steady at 68.0 from the prior release of 67.9.