Sterling Gains As Dollar Weakens
Pound Sterling gains against US Dollar on rising Fed rate cut expectations
The Pound Sterling (GBP) traded steadily near the 1.3500 mark against the US Dollar (USD) during the European session on Monday. The GBP/USD pair drew support from broad-based selling pressure on the Greenback, as traders increasingly bet that the Federal Reserve (Fed) could deliver a 50 basis point (bps) interest rate cut — larger than the standard 25 bps move — at its policy meeting next week.
At the time of writing, the US Dollar Index (DXY), which measures the USD’s value against a basket of six major currencies, was hovering cautiously below the 98.00 level.
According to the CME FedWatch Tool, markets now assign a 10% probability to a 50 bps cut, bringing the target range down to 3.75%-4.00%, while the majority expect a 25 bps reduction. This marks a sharp shift from just a week ago, when there was nearly a 15% chance the Fed would leave rates unchanged.
Dovish Fed expectations intensified after Friday’s US Nonfarm Payrolls (NFP) report for August signaled weakness in the labor market. The data showed the economy added only 22,000 jobs — the smallest gain since January 2021 — while the Unemployment Rate ticked up to 4.3% from 4.2%, in line with forecasts.
Expectations for rate cuts had already been building earlier in August following the July NFP release, which included significant downward revisions to May and June employment figures.
Daily Digest Market Movers: Pound underperforms most peers except the USD
The Pound Sterling underperformed against most major currencies at the start of the week, except for the US Dollar. The British currency was weighed down by comments from Bank of England (BoE) Governor Andrew Bailey last week, in which he reiterated the need to further unwind restrictive monetary policy, citing risks to the labor market.
Bailey noted “doubt over the pace of interest rate cuts,” though he confirmed the path “will continue to be downwards.” He also warned that he is more concerned about downside employment risks than other Monetary Policy Committee (MPC) members who voted to keep rates unchanged in August. On inflation, Bailey pointed to upside risks stemming from the supply side.
UK inflation has accelerated notably, prompting some BoE members to argue for holding rates steady. In July, the headline Consumer Price Index (CPI) rose 3.8% year-on-year — the highest since January 2024.
Meanwhile, UK monthly Retail Sales for July surprised to the upside, rising 0.6% versus expectations of 0.2% and the prior 0.3% reading.
Looking ahead, investors will focus on Tuesday’s speech from BoE Deputy Governor Sarah Breeden, one of five MPC members who voted for a 25 bps rate cut to 4% in August.
In the US, attention will turn to Thursday’s release of August CPI data, which could offer clues on whether current US trade tariffs are adding to price pressures.
Technical Analysis: GBP/USD holds near 20-day EMA
The Pound Sterling edged up to around 1.3515 against the US Dollar on Monday but remained within Friday’s trading range. The near-term trend is sideways, with the pair trading close to the 20-day Exponential Moving Average (EMA) at 1.3475.
The 14-day Relative Strength Index (RSI) is oscillating between 40.00 and 60.00, indicating a neutral bias.
On the downside, the August 1 low at 1.3140 serves as key support. On the upside, the August 14 high near 1.3600 is the next major resistance level.