Pound Nears 1.3550 as Fed Hike Bets Fade, UK Data Looms

Key Moments

GBP/USD Supported by Softer US Data and Fed Repricing

The British Pound is edging higher against the US Dollar in early Asian trade on Tuesday, with GBP/USD moving up toward the 1.3550 area. The US Dollar is losing ground to Sterling as recent signs of cooler US inflation have led investors to scale back expectations for imminent tightening by the Federal Reserve. Market attention is now turning to upcoming UK labor market figures later in the day.

Subdued readings on US Retail Sales, combined with softer-than-anticipated Consumer Price Index (CPI) and Producer Price Index (PPI) data last week, have dampened expectations for a rate increase at the Fed’s September 15-16 policy meeting. According to the CME FedWatch tool, traders currently see only a 35% chance of a September hike, although they are assigning a 69% probability to a rate increase by December.

BoE Outlook and Incoming UK Data

On the UK side, policy expectations remain tilted toward additional tightening. Bank of England (BoE) Chief Economist Huw Pill stated last week that stronger-than-expected UK economic growth figures have strengthened the argument for higher borrowing costs in order to bring inflation back to the central bank’s target.

Market pricing reflects this stance, with financial markets factoring in at least one interest rate increase by the BoE this year, based on data compiled by LSEG. Investors will be closely monitoring a series of UK releases in the coming days, starting with the employment report due later on Tuesday.

The UK Unemployment Rate is forecast to decline to 4.8% in June from 4.9% in May. Any upside surprise relative to these projections could provide fresh support to the Pound against the US Dollar in the short term, as it would reinforce expectations for further BoE tightening.

Data-Heavy Week Keeps Sterling Traders Cautious

Strategists at Scotiabank describe a measured tone in the market ahead of a wave of UK indicators, remarking that “markets are perhaps a little cautious ahead of this week’s barrage of UK data—wages, jobs, CPI, Retail Sales etc..” They note that the prospect of multiple key releases is prompting investors to be careful with positioning in Sterling, even as GBP/USD trades close to recent highs.

Technical Picture: Bullish Bias Above 100-Day SMA

From a technical perspective, GBP/USD retains a constructive short-term outlook on the daily chart, with spot prices holding above both the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands. The pair is pushing toward the upper Bollinger Band, which is currently acting as resistance, while the 14-day Relative Strength Index (RSI) stands near 64, indicating positive but not overextended momentum.

On the downside, initial demand is seen at the Bollinger middle band near 1.3440, with the 100-day SMA around 1.3420 providing an additional supportive area beneath. A more distant but important technical floor is located at the lower Bollinger Band near 1.3275. On the upside, a decisive break through the upper Bollinger Band at 1.3605 would signal scope for further gains, while an inability to clear this level could lead to consolidation or a corrective move back toward support in the mid-1.34 region.