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GBP/USD dips on Monday, pulling back from a two-week high as the US Dollar strengthens ahead of Tuesday’s key inflation report.
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The Bank of England delivered a hawkish 25 basis point rate cut last week, lowering the Bank Rate to 4.00%—its lowest since March 2023—following a narrow 5-4 vote.
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All eyes are on Tuesday’s UK labor market report, with unemployment expected to hold at 4.7%; any softness in jobs or wage growth could reignite speculation about further rate cuts.
The British Pound (GBP) edged lower against the US Dollar (USD) on Monday, retreating from a two-week high as the Greenback strengthened ahead of Tuesday’s key US Consumer Price Index (CPI) release. A modest rebound in the US Dollar weighed on sentiment, pulling GBP/USD down after an earlier rally.
At the time of writing, the pair is trading near 1.3407 during the U.S. session, slightly below intraday highs. Meanwhile, the US Dollar Index (DXY), which tracks the currency against a basket of six major peers, is rebounding from a near two-week low, last seen around 98.50.
Last week, the Bank of England (BoE) lowered its benchmark interest rate by 25 basis points to 4.00%, the lowest level since March 2023. While the cut marked a notable shift toward growth support, the decision was accompanied by a hawkish tone. The narrow 5-4 vote and the BoE's cautious forward guidance signaled that policymakers remain concerned about inflation and are in no rush to ease further without clear justification from incoming data.
In the wake of the rate cut, investor expectations for further BoE easing in 2025 have moderated. Markets now price in just one additional cut this year—likely in November—and some are even betting the next move could be postponed until early 2026.
All eyes are now on Tuesday’s UK labor market report, which could influence the BoE’s next steps. The unemployment rate is expected to remain steady at 4.7%, but any sign of weakening job or wage growth may revive speculation about further rate cuts. On the other hand, stronger-than-expected data could support the view that the BoE will pause for now. Attention will also turn to Thursday’s GDP data, which may offer additional insight into the UK’s economic momentum.
In the US, the upcoming CPI report is poised to be a key market catalyst. With traders already anticipating a Federal Reserve rate cut in September, a hotter-than-expected inflation reading could scale back those expectations and support the Dollar. Conversely, softer data would likely reinforce the case for easing, pressuring the Greenback and offering support to GBP/USD.
