Pound Gains Above 1.3550 as U.S. Data Softens

Key Moments

Dollar Retreat Supports Sterling Bid

GBP/USD was trading near 1.3555 in early European hours on Monday, with the British Pound gaining ground against the U.S. Dollar as expectations for a near-term Federal Reserve rate increase eased. The pullback in Fed hike bets followed weaker U.S. data, while market participants looked ahead to upcoming UK employment and inflation figures scheduled later in the week.

The U.S. Dollar softened after recent data releases undermined the case for tighter policy at the Fed’s September 15-16 meeting. In particular, investors scaled back expectations that the central bank would proceed with a rate hike at that gathering.

U.S. Retail Sales and Inflation Data Cool Fed Hike Odds

According to the U.S. Census Bureau, Retail Sales in the United States fell in July for the first time in nine months, as the earlier boost from substantial tax refunds waned. This weaker consumption backdrop, combined with signs of subdued U.S. inflation and unexpected job losses, reinforced the view that policymakers may opt to keep rates unchanged at the next policy decision.

Market-implied probabilities reflected this shift in sentiment. As per the CME FedWatch Tool, investors were pricing in a 31% chance of a rate increase at the forthcoming Fed meeting, down from 35% immediately after the release of the Retail Sales report.

“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.

BoE’s Pill Highlights Resilient UK Growth

On the UK side, policy commentary continued to provide support for the Pound. Bank of England Chief Economist Huw Pill indicated that stronger-than-anticipated UK economic growth data strengthened the argument for higher borrowing costs to steer inflation back toward target. He noted that figures showing UK GDP expanding 0.4% in the second quarter suggested the economy was not sliding into a sharp downturn.

Strategists See Policy Messaging as Key Support for GBP

Strategists at Scotiabank observed that, while the broader flow of economic releases has been relatively light, central bank communication has been a major support factor for Sterling. They highlighted that although “fundamental releases have been limited,” recent BoE commentary has “remained hawkish,” pointing to remarks from Chief Economist Huw Pill that have “reaffirmed a call for higher rates.” This ongoing tightening bias has helped maintain a constructive tone around GBP despite a quieter data backdrop.

GBP/USD Technical Picture: Bullish Tone Above 100-Day SMA

From a technical perspective, the daily chart shows GBP/USD maintaining a positive near-term stance as the pair trades above the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. This configuration continues to support the recent upward trend, with spot prices gradually moving closer to the upper Bollinger band.

The 14-day Relative Strength Index (RSI) stands at 64, indicating positive momentum that has not yet reached overbought territory. This suggests that upside pressure remains firm but not stretched.

On the upside, a clear move above resistance around the upper Bollinger band near 1.3595 would expose the next hurdle at the May 8 high of 1.3637. On the downside, initial support is located at the Bollinger middle band close to 1.3435, with the 100-day SMA at 1.3415 providing an additional layer of defense. A more pronounced retreat could extend toward the lower Bollinger band near 1.3273, an area where dip-buying interest would typically be anticipated.