- The Pound Sterling holds firm near 1.3500 against the US Dollar as markets price in larger Fed rate cut bets.
- US August NFP data highlights growing cracks in the labor market.
- Investors eye Bank of England’s Breeden speech on Tuesday.
The Pound Sterling (GBP) trades steadily around 1.3500 against the US Dollar (USD) during Monday’s European session. The GBP/USD pair remains supported as the US Dollar weakens on rising speculation that the Federal Reserve (Fed) could deliver a larger-than-usual 50 basis points (bps) interest rate cut at its policy meeting next week.
At the time of writing, the US Dollar Index (DXY), which measures the Greenback against six major currencies, trades cautiously below 98.00.
According to the CME FedWatch Tool, markets currently assign a 10% probability of a 50 bps rate cut to the 3.75%–4.00% range, with the majority still expecting a 25 bps reduction. This marks a sharp shift from just a week ago, when nearly 15% of traders believed the Fed would leave rates unchanged.
The dovish tilt in Fed expectations gained traction after Friday’s Nonfarm Payrolls (NFP) data for August signaled weakness in the US labor market. The report showed only 22K jobs were added—the lowest since January 2021—while the unemployment rate rose to 4.3% from 4.2%, in line with expectations.
Market bets on Fed cuts had already increased in early August following the release of July’s NFP report, which included significant downward revisions to May and June employment figures.
Daily Digest Market Movers: Pound Sterling trades lower against its major peers
- The Pound Sterling underperforms most major currencies, except the US Dollar, at the start of the week. The British currency weakens after Bank of England (BoE) Governor Andrew Bailey reiterated the need to continue unwinding monetary policy restrictiveness in his testimony before the House of Commons’ Treasury Committee last week, citing labor market risks.
- Bailey noted there is “doubt over the pace of interest rate cuts,” though the trajectory “will continue to be downwards.” He expressed greater concern over “downside job risks” compared to other Monetary Policy Committee (MPC) members, who voted to keep rates unchanged at the August policy meeting. On inflation, Bailey highlighted that upside pressures are being driven by supply-side factors.
- Inflation in the UK has accelerated notably, supporting the case for several BoE members to argue for maintaining rates at current levels. In July, headline Consumer Price Index (CPI) rose 3.8% year-on-year—the highest since January 2024.
- On the data front, UK Retail Sales for July outperformed expectations, rising 0.6% compared to forecasts of 0.2% and the previous 0.3% gain. The stronger-than-expected figure underscores resilient consumer spending.
- Looking ahead, investors will turn their attention to BoE Deputy Governor Sarah Breeden’s speech on Tuesday. Breeden was among five MPC members who voted for a 25 bps rate cut to 4% in the August meeting.
- In the United States, focus will shift to August CPI data, due Thursday. Markets will watch closely to assess whether President Donald Trump’s tariffs are fueling inflationary pressures.
Technical Analysis: Pound Sterling holds near 20-day EMA
The Pound Sterling moves slightly higher toward 1.3515 against the US Dollar on Monday but remains within Friday’s trading range. The near-term outlook for GBP/USD is neutral, as the pair consolidates around the 20-day Exponential Moving Average (EMA), currently near 1.3475.
The 14-day Relative Strength Index (RSI) fluctuates between 40.00 and 60.00, reinforcing the sideways trend.
On the downside, the August 1 low at 1.3140 serves as a key support zone. On the upside, resistance is seen at the August 14 high near 1.3600, which will act as a crucial barrier for further gains.
