Sterling Holds Firm as Markets Weigh UK Data, Fed Path

Key Moments

GBP/USD Edges Higher Ahead of Key UK and US Data

The British Pound advances against the US Dollar in early Asian trade on Thursday, with GBP/USD hovering around 1.3230. The move comes even as the US Dollar eases following hotter-than-expected US Consumer Price Index (CPI) figures.

Market participants are positioning for a series of data releases later on Thursday, including monthly UK Gross Domestic Product (GDP), followed by US Producer Price Index (PPI) and US Retail Sales, which could set the tone for both Bank of England (BoE) and Federal Reserve expectations.

US CPI Data and Fed Expectations

Fresh US inflation figures showed renewed price pressures. According to the Labor Department’s Bureau of Labor Statistics, headline US CPI increased 0.6% month-on-month in September after a 0.4% gain in August. On a yearly basis, headline CPI accelerated to 3.7% from 3.4% previously.

Despite the firmer inflation reading, rate expectations suggest markets anticipate a pause at the next Federal Reserve meeting. Data from the CME FedWatch Tool indicate traders assign a 75.1% probability that the Fed will keep its benchmark rate unchanged at the October 27-28 gathering, up from 53% one month earlier. At the same time, markets are pricing about 79 basis points of cumulative tightening by late 2027.

BoE Signals Caution on Aggressive Tightening

On the UK side, BoE Chief Economist Huw Pill flagged reservations over current market projections for the policy path. He stated on Wednesday that he was more skeptical about expectations for four BoE rate increases over the next year.

Even so, several officials have warned that borrowing costs may still need to rise further if geopolitical tensions and related shocks persist. On Tuesday, BoE Governor Andrew Bailey noted that pressure on broader inflation had so far been contained,
“but the longer this goes on, the harder it gets.”

According to Reuters, markets are assigning a near-certain probability to a 25 basis point hike at the Monetary Policy Committee (MPC) meeting in November, with three additional increases priced in by September 2027.

Sterling Underpinned by UK Growth Prospects

Strategists at Scotiabank observe that the Pound is “moderately firmer against the USD,” and that the recent advance is “merely in line with its core major peers” as policy and growth dynamics lend support.

They point to remarks from BoE MPC member Greene, who said that “faster UK economic growth supported the outlook for tighter monetary policy,” and note that the IMF has “upgraded the UK growth outlook moderately to 1.3% (from 1.0%) earlier.”

The data calendar is set to play a prominent role, with Scotiabank highlighting that “August GDP data…due Thursday (along with other growth indicators and trade data)” will be closely monitored.

Range-Bound Sterling: Scotiabank’s Technical Perspective

From a technical standpoint, Scotiabank characterizes GBP/USD as “Neutral – Cable has carved out a well-defined trading range over the past couple of weeks, with firm support emerging below 1.32 while gains have been capped around the upper 1.32/low 1.33 range.”

They note that “trend momentum is neutral on the intraday chart, supporting the outlook for more, sideways movement,” while acknowledging that “broader bearish pressure remains intact” but “may be moderating.” The bank identifies “key support is 1.3140/50” as an important downside marker for the pair.

BoE’s Pill: Hawkish on Inflation, Measured on Pace of Hikes

Huw Pill’s latest remarks delivered a moderately hawkish tone overall. His speech was assigned a 7/10 score by the FXS Speechtracker, slightly below the historical average of 7.4/10, as it recognized resilience in UK output and labor markets but downplayed the prospect of excessive growth.

His doubts about the market’s pricing of four hikes over the next year and the need for stronger evidence to support 100 basis points of tightening underline a more measured stance on how quickly rates should rise, rather than an endorsement of aggressive moves.

Pill’s comments that an earlier move would have shown the BoE was not “holding and hoping,” and that it is misguided not to react to uncertainty, reinforce a preference for data-dependent tightening. This comes amid what he described as persistent underlying UK inflation that “never fell enough pre-Iran shock.” The message tilts slightly hawkish on inflation risks but reins in expectations for rapid successive hikes, potentially limiting near-term upside for Sterling while maintaining support for rate projections.