GBP Weakens as Traders Reassess Fed and BoE Rate Paths

Key Moments

Dollar Bid Weighs on Sterling

The British Pound eased against the US Dollar as trading unfolded in Asian hours on Monday, with GBP/USD hovering around 1.3240. The pair came under renewed downside pressure as the greenback advanced ahead of the release of the US ISM Services Purchasing Managers Index.

This move followed a modest uptick in GBP/USD during the previous session but left the cross struggling to maintain upward momentum as investors focused on incoming US services sector data and its potential implications for monetary policy.

Fed Hike Odds Recede After Soft US Labor Data

Recent US employment figures have led market participants to temper expectations for further near-term tightening by the Federal Reserve. Following the latest jobs report, financial markets are assigning approximately a 77.9% chance that the Fed will keep benchmark interest rates on hold at its October policy meeting, compared with 74% before the data.

The reassessment was driven by a notably weak September Nonfarm Payrolls report. US NFP increased by only 29,000, falling well short of consensus projections of 90,000 and marking a steep slowdown from August’s downwardly revised gain of 133,000. At the same time, the unemployment rate edged higher to 4.2%, even as the labor force participation rate ticked up to 61.8%.

BoE Path Supported by Inflation Risks

On the UK side, rate expectations remain skewed toward further tightening. Investors are currently discounting around 30 basis points of additional hikes from the Bank of England by the end of the year, with a total of roughly 90 basis points of further tightening projected through 2027.

Bank of England officials, including Governor Andrew Bailey, have signaled an increasing readiness to lift interest rates further to tackle inflation risks associated with elevated energy prices. These communications are helping to anchor expectations for a sustained, though measured, tightening cycle.

Improved UK Outlook Underpins Pound Narrative

Analysts at MUFG note that the UK growth backdrop has brightened, emphasizing that BoE staff have upgraded their estimates for the current quarter. Consistent with this reassessment, MUFG/BTMU report that they have
“raised their forecast for growth in Q3 to 0.4% up from their previous projection of 0.1% set back in July,”
highlighting a more resilient domestic environment.

This upgraded growth profile is seen as a supportive element for the Pound, even as it continues to trade near its year-to-date lows against the US Dollar.

GBP/USD Technical Setup

On the daily chart, GBP/USD is trading close to 1.3240 and maintains a bearish short-term bias, with spot prices holding below the nine-period Exponential Moving Averages (EMAs). Trading beneath these shorter-term averages signals that rebound attempts may struggle to gain traction, while the 14-day Relative Strength Index near 35 points to ongoing downside pressure rather than a clearly oversold condition.

Immediate resistance is seen at the nine-period EMA around 1.3259, with a more important cap at the 50-period EMA near 1.3399 that aligns with the broader bearish structure. The indicators provided do not specify clear support levels, leaving traders focused on recent lows as potential horizontal floors. A daily close above 1.3259 would be the earliest indication that selling pressure may be starting to diminish.

Logan’s Hawkish Stance Bolsters Dollar Outlook

A recent speech by Federal Reserve official Logan added a hawkish dimension to the policy debate and supported the US Dollar. According to the FXS Speechtracker, Logan’s remarks scored 9.2/10, contrasting with a historical average of 8.1/10 and representing a clear hawkish surprise.

The speech underscored that policy is not yet restrictive and must be “modestly tight.” While Logan acknowledged that higher yields may partly reflect rising term premiums, which could reduce the need for additional rate hikes, that nuance was overshadowed by explicit calls for at least 50 bps of further tightening and multiple steps to reverse last fall’s rate cuts. Taken together, the message reinforced a higher-for-longer policy narrative.

In combination with indications of stronger economic expansion, a balanced labor market, and a firm emphasis on restoring price stability, Logan’s comments contributed to upside risks for the Dollar as market participants price in a more assertive Fed stance.