The Pound Sterling has dipped to approximately 1.3500 against the US Dollar as traders brace for the release of the US Consumer Price Index (CPI) data for August, which is scheduled to be published at 12:30 GMT. This economic indicator is expected to significantly influence market speculation regarding the Federal Reserve’s potential interest rate cut during its policy meeting next week.
Amid this backdrop, the US Dollar Index (DXY), reflecting the currency’s performance against six major counterparts, is trading near a three-day high around 98.00. As shown by the CME FedWatch tool, traders are increasingly betting on the Federal Reserve to resume its monetary easing, with an 8% likelihood of a 50 basis point reduction to a target range of 3.75%-4.00% by September 17. In contrast, a 25-basis-point cut remains more commonly anticipated.
The market consensus indicates the headline inflation rate in the US is expected to rise to an annualized 2.9%, an increase from the 2.7% reported in July. The core CPI, which excludes the fluctuating prices of food and energy, is projected to increase by 3.1% year-over-year. Month-over-month, both the headline and core CPI are estimated to have grown by 0.3%. Should the inflation figures indicate alleviating price pressures, this could lead traders to advocate for a more substantial interest rate cut by the Fed. Conversely, any unexpected hot inflation readings could stifle such predictions.
In the UK, the Pound has generally maintained a stable status against its main counterparts, showing a stronger performance in recent trading sessions. There is growing anticipation for a divergence in monetary policy between the Bank of England (BoE) and other central banks across Europe and North America. The BoE appears less inclined to implement cuts in the near future, primarily due to persistent inflationary pressures within the UK economy, which saw the headline CPI rise to 3.8% in July—the highest since February 2024.
During a recent address to the House of Commons’ Treasury Committee, BoE Deputy Governor Clare Lombardelli provided a hawkish outlook, emphasizing the risks of upside inflation that could impede the central bank’s efforts to achieve its inflation target of 2%. Meanwhile, market observers anticipate the European Central Bank (ECB) will maintain its deposit rate at 2% during an upcoming meeting, likely leaving space for potential future cuts, marking the second consecutive meeting where rates remain steady.
Looking ahead, traders will focus on the upcoming UK Gross Domestic Product (GDP) and factory data for July, set for release on Friday. Analysts expect the Office for National Statistics (ONS) to report stagnation in monthly economic growth, following a 0.4% expansion in June.
On a fiscal note, UK Chancellor of the Exchequer Rachel Reeves has indicated a commitment to exploring tax reforms aimed at supporting small businesses—a development that may compel the government to adjust its previously established fiscal rules. Such measures might lead to an increase in UK gilt yields, particularly given the existing large-scale fiscal debt concerns.
In terms of technical analysis, the Pound’s drop to near 1.3500 against the US Dollar highlights a period of indecisiveness among investors. The GBP/USD pair is currently positioned within an Ascending Triangle chart pattern, illustrating reluctance to make significant moves. The horizontal resistance from the July 23 high is approximately at 1.3585, while the upward-sloping support is drawn from the August 1 low of 1.3140. Currently, the trend appears sideways, as the Cable hovers near the 20-day Exponential Moving Average of about 1.3489. The 14-day Relative Strength Index (RSI) suggests a neutral trend, fluctuating between the 40.00-60.00 range. Key support is found at the August 1 low of 1.3140, and the July 1 high of 1.3800 may serve as a notable resistance level.
