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British Pound gathers strength above 1.3550 as softer US data cools Fed hike bets

  • GBP/USD gains ground to around 1.3555 in Monday’s early European session. 
  • Softer US Retail Sales data have tempered expectations that the Fed will raise rates in September. 
  • BoE’s Pill said UK growth supports case for higher interest rates. 

The GBP/USD pair gains traction to near 1.3555 during the early European trading hours on Monday. The US Dollar (USD) weakens against the British Pound (GBP) as bets for a US Federal Reserve (Fed) rate hike come down. Traders will keep an eye on the UK employment and inflation reports, which are due later this week

US Retail Sales fell in July for the first time in nine months as the boost from big tax refunds faded, the US Census Bureau reported on Friday. Signs of tame US inflation data added to unexpected job losses last month in bolstering financial market expectations that the Fed would not raise interest rates at its September 15-16 policy meeting.

Markets are now pricing a 31% probability ‌of a Fed rate hike at the upcoming policy meeting, down from 35% immediately after the US Retail Sales report, according to the CME FedWatch Tool.  

"This points to a material slowdown in real consumer spending growth in the third quarter," said Sal Guatieri, a senior economist at BMO Capital Markets. "This, together with a weaker jobs report and subdued core CPI inflation, raises the odds of the FOMC staying patient again in September,” Guatieri added. 

Bank of England (BoE) Chief Economist Huw Pill stated ‌that stronger-than-expected UK economic growth readings reinforced the case for higher borrowing costs to bring inflation back to target. Pill said that data showing the UK economy grew 0.4% in the second quarter suggested the country was ‌not heading into a sharp downturn.

Pound support underpinned as BoE tone stays hawkish

According to strategists at Scotiabank, the broader data calendar has offered little fresh direction, but policy messaging remains a key pillar of support for the Pound. They note that while “fundamental releases have been limited,” recent BoE communication has “remained hawkish,” with comments from Chief Economist Huw Pill that have “reaffirmed a call for higher rates.” This persistent tightening bias from the BoE is helping to sustain the constructive tone around GBP despite the quieter flow of new economic information.

Chart Analysis GBP/USD

Technical Analysis: GBP/USD keeps a positive tone above the key 100-day SMA

In the daily chart, GBP/USD maintains a bullish near-term bias as spot holds above the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, keeping the recent uptrend technically supported. Price is edging toward the upper Bollinger band, while the 14-day Relative Strength Index at 64 stays in positive territory but shy of overbought, suggesting firm yet not extreme upside momentum.

On the topside, immediate resistance is located at the Bollinger upper band around 1.3595, where a clear break would open the door to the May 8 high of 1.3637. On the downside, initial support is seen at the Bollinger middle band near 1.3435, followed by the 100-day SMA at 1.3415; a deeper pullback could extend toward the lower Bollinger band around 1.3273, where buyers would be expected to re-emerge.

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

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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