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- GBP/USD strengthens to around 1.3645 in Friday’s early Asian session.
- A disappointing US jobs report and softer inflation data dialed back bets of tighter Fed monetary policy.
- BoE is expected to hold rates for the remainder of the year.
The GBP/USD pair gathers strength near 1.3645 during the early Asian trading hours on Friday. The US Dollar (USD) softens against the British Pound (GBP) amid fading Federal Reserve (Fed) rate hike expectations. Traders brace for the UK Retail Sales data for July, which will be published later on Friday.
Softer US economic data and uncertainty over Fed policy exert some selling pressure on the Greenback. Charu Chanana, chief investment strategist at Saxo, said that higher Treasury yields do not necessarily underpin the USD if investors believe the increase reflects fiscal risk, heavier government borrowing or persistent inflation, rather than stronger US growth or tighter monetary policy.
Markets are pricing in a 64% chance that the US central bank will keep rates unchanged in September and a 36% chance of a hike, according to the CME FedWatch Tool.
The Bank of England (BoE) is likely to leave interest rates unchanged at 3.75% for the rest of the year, according to a strong majority of economists polled by Reuters.
Traders await the UK July Retail Sales data for more cues about the UK interest rate outlook. Economists project the Retail Sales to decline by 0.5% MoM in July, compared to 1.0% in June. In case of a weaker-than-expected outcome, this could drag the Cable lower in the near term.
BoE rate expectations ease as UK data undercuts hawkish bets
Analysts at Danske Bank note that the latest inflation release, when viewed alongside “yesterday’s weak labour market data,” has helped cool expectations for further tightening. They highlight that the combination of softer price dynamics and labour market signals “has taken the top off BoE pricing for the remainder of the year.”
Fed’s Musalem flags inflation risks and hints at case for pre-emptive hikes
Fed’s Musalem delivered a speech broadly in line with the established baseline, with the FXS Speechtracker score at 7/10 matching the historical average and signaling a familiar mix of concern and caution. The emphasis on strong growth, accommodative financial conditions, underlying inflation stuck around 2.5%-3%, and the notion that “hiking rates now could save more aggressive action later” tilts the tone modestly hawkish, even as Musalem stresses Fed credibility and independence from fiscal policy. References to high input costs, the risk of a Super El Nino supply shock, and the view that current policy is neutral or accommodative underscore a bias toward tighter policy if inflation fails to converge to 2%, while avoiding explicit guidance ahead of the September FOMC.
The FXS Fed Sentiment Index slipped by 0.34 points to 132.42, indicating a slight pullback in hawkishness relative to the prior reading but remaining firmly above the 100 neutral line. This configuration suggests the Fed is still perceived as operating in hawkish territory despite the marginal softening, consistent with a speech that acknowledges accommodative conditions yet frames pre-emptive tightening as a live option, as captured by the FXS Speechtracker.
Technical Analysis: GBP/USD keeps a bullish vibe amid overbought RSI momentum
In the daily chart, GBP/USD maintains a bullish near‑term bias as spot holds above both the 100‑day simple moving average (SMA) and the Bollinger 20‑period middle band. Price is pressing toward the upper Bollinger band, highlighting a strong topside extension, while the Relative Strength Index (14) at about 71 shifts into overbought territory, suggesting that upside momentum is robust but increasingly vulnerable to a corrective pause.
On the topside, immediate resistance is located at the Bollinger upper band at 1.3665, and a sustained break above this level would open the path for further gains in the broader up‑move. On the downside, initial support emerges from the Bollinger middle band cluster around 1.3485, followed by the 100‑day SMA at 1.3432, with deeper demand seen near the lower Bollinger band at 1.3300; a pullback towards this layered support zone would likely be seen as a dip‑buying opportunity while price holds above the 100‑day average.
