GBP/USD experienced notable fluctuations on Tuesday, briefly reaching a four-week high before retreating. The currency pair tested levels above 1.3550, but this rally was short-lived, ending a two-day streak of gains and pushing it back toward the 1.3500 mark.
This week’s economic calendar appears largely void of significant data from the United Kingdom, leaving US inflation reports to steer market sentiment. Investors are grappling with the implications of surprising downward revisions in US labor market data, with the latest updates revealing that the job market added nearly 900,000 fewer jobs than previously anticipated for the annual period of March 2024 to March 2025. This adjustment raises concerns over the potential for further negative revisions due to the effects of the post-tariff economy.
The continuing weakness in US job creation has bolstered expectations for Federal Reserve interest rate cuts. According to the CME’s FedWatch Tool, traders are now pricing in a 25 basis point cut by the Fed during their upcoming meeting on September 17. Some market players are even speculating on a heightened probability—over 17%—that the Fed could be pressured into a more substantial cut of 50 basis points.
A critical report on US Consumer Price Index (CPI) inflation is scheduled for release on Thursday. Analysts expect that this data will reinforce the idea that inflationary pressures remain stubbornly high, well above the Fed’s 2% annual target. This persistent inflation complicates the Fed’s ability to implement aggressive rate cuts, despite current policy rates sitting above the so-called r-star, or natural rate of interest.
The Pound Sterling, known for being the oldest currency still in use, plays a pivotal role in global currency markets, accounting for approximately 12% of all foreign exchange transactions. The currency is heavily influenced by the monetary policies determined by the Bank of England (BoE). The BoE focuses primarily on maintaining price stability, targeting an inflation rate around 2%. Interest rate adjustments are its main tool for addressing inflation, with higher rates typically attracting foreign investment, thereby strengthening the GBP.
Indicators such as GDP growth, Manufacturing and Services PMIs, and employment figures significantly affect GBP’s value. Positive economic data tends to bolster the Pound, while weaker data can lead to declines. Additionally, the Trade Balance—a measure of exports versus imports—can influence currency strength. A favorable Trade Balance can enhance demand for the GBP, whereas a negative balance can have the opposite effect.
As the market continues to process the implications of US economic data and the Fed’s potential policy moves, GBP/USD may remain volatile, influenced by upcoming inflation reports and ongoing labor market assessments.
