Dollar Gains Ahead of US Inflation Data as Pound Holds Steady

The pound maintained its stability on Friday despite stronger-than-expected UK GDP data, while the dollar strengthened ahead of US inflation data that could cement a Federal Reserve rate hike next week.

GBP/USD traded at 1.3504, down 0.06%, and EUR/USD fell 0.09% to 1.1599 as of 05:10 ET (09:10 GMT).

Francesco Pesole, FX strategist at ING, said the dollar's positive correlation with long-end Treasury yields is rebuilding, pointing to upside potential for the currency.

Pesole noted that a smaller-than-expected Treasury buyback and Treasury Secretary Scott Bessent's reluctance to fight the bond market have contributed to this link. Oil's 15% rally since Gulf tensions flared and stalled yen strength are also feeding into a defensive rotation back into the dollar, he added.

Markets have priced in an 18 basis point rate hike for next week's FOMC meeting ahead of Friday's August CPI data, with consensus at 0.4% headline and 0.2% core month-on-month growth.