British Pound gathers strength to near 1.3550 as Fed hike bets fade, UK jobs data loom

GBP/USD drifts higher to near 1.3550 in Tuesday’s early Asian session.
Traders expect just a 35% chance of a rate increase at the Fed's September meeting.
The UK jobs data will take center stage later on Tuesday.

Lallalit Srijandorn FXStreet

The GBP/USD pair gains momentum to around 1.3550 during the early Asian trading hours on Tuesday. The US Dollar (USD) softens against the British Pound (GBP) as cooler US inflation data have prompted traders to reduce bets on a US Federal Reserve (Fed) rate hike. The UK employment report will be in the spotlight later on Tuesday.

The weak US Retail Sales, along with softer-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) inflation data last week, have tempered expectations that the US central bank will raise rates at its September 15-16 policy meeting. Traders are now pricing in just a 35% probability of a September hike, alongside a 69% odds of a rate increase by December, according to the CME FedWatch tool.

Bank of England (BoE) Chief Economist Huw Pill said last week ‌that stronger-than-expected UK economic growth readings reinforced the case for higher borrowing costs to bring inflation back to target.

Financial markets have priced in at least one interest rate increase by the Bank of England (BoE) this year, according to data compiled by LSEG.

Traders will closely watch the UK jobs and inflation data later this week, which could offer some hints about the BoE interest rate path. The UK Unemployment Rate is projected to fall to 4.8% in June from 4.9% in May. Better-than-expected outcomes could lift the GBP against the USD in the near term.

Uk data barrage keeps Pound traders on edge

Strategists at Scotiabank highlight a cautious tone in the market, noting that “markets are perhaps a little cautious ahead of this week’s barrage of UK data—wages, jobs, CPI, Retail Sales etc..” They suggest that the upcoming releases are encouraging investors to tread carefully around the Pound, even as it trades near recent highs against the USD.

Technical Analysis: The positive outlook of GBP/USD prevails above the 100-day SMA

In the daily chart, GBP/USD maintains a bullish near-term bias as spot holds above both the 100-day simple moving average (SMA) and the Bollinger middle band. The pair is advancing toward the Bollinger upper band, which caps the topside for now, while the Relative Strength Index (14) around 64 stays in positive territory but shy of overbought, hinting that bullish momentum is constructive yet not overstretched.

On the downside, initial demand is seen at the Bollinger middle band at 1.3440, followed by the 100-day SMA at 1.3420 as a deeper but still supportive layer, with the Bollinger lower band near 1.3275 marking a more distant structural floor. On the topside, a clear break above the Bollinger upper band at 1.3605 would open the door for further gains, while failure to overcome this barrier could trigger consolidation or a corrective pullback toward the clustered support zone in the mid-1.34s.

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

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

FXStreet

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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