Key Points:
- GBP/USD is trading around 1.3646 after hitting its highest level since July.
- UK annual inflation came in at 3.8% for August, matching forecasts and easing pressure on the BoE.
- The Bank of England is expected to keep rates at 4% this week, while the Fed is set to cut by 25bps.
Sterling held its ground on Wednesday as the UK’s latest inflation report offered few surprises and little incentive for the Bank of England to adjust its current stance.
GBP/USD traded around 1.3646 as of midday, flat on the day, after touching its highest level since early July during Tuesday’s session.
The Office for National Statistics reported that annual inflation stood at 3.8% in August, perfectly in line with the Reuters poll median.
The release corrected some of the upside surprise from July, but inflation remains elevated and well above the BoE’s 2% target.
With this context, policymakers are expected to keep interest rates steady at 4% when they meet on Thursday.
Economists still expect one cut before year-end, but the timing remains unclear, particularly given persistent price pressures in core components of the CPI basket.
Market Watches for Fed Cut and Global Divergence
The broader FX market is now focused on the US Federal Reserve, which is expected to cut its benchmark rate by 25 basis points later today. That would bring the federal funds rate down to the 4.00%–4.25% range and mark a widening divergence between US and UK monetary policy.
This divergence is key to the pound’s strength. As the Fed shifts into easing mode and the BoE stays pat, GBP/USD is finding steady upward traction, especially against a broadly weaker US dollar.
Meanwhile, the European Central Bank has also opted to hold rates steady, further highlighting the desynchronisation in policy moves among major central banks.
Sterling also edged higher against the euro, with EUR/GBP slipping 0.07% to 86.89 pence. Deutsche Bank’s Sanjay Raja noted that while August’s UK inflation print offered relief, “CPI may have a little further to go before hitting its peak,” reinforcing the BoE’s cautious stance.
Technical Overview
Sterling (GBP/USD) is holding steady at 1.3646, flat on the day, but pushing against a key resistance level.
The chart shows the pair climbing from its March low at 1.2546, topping out at 1.3789 in July, and now consolidating in the 1.35–1.37 band.
The moving averages (5,10,30) are starting to align to the upside, while the MACD is crossing into positive territory, hinting at growing bullish momentum.
Immediate resistance sits at 1.3650–1.3780, while support is layered at 1.3500 and further down near 1.31. A breakout above 1.3780 could open the path toward 1.40, but failure to hold above 1.35 risks another pullback.
Cautious Forecast
In the short term, GBP/USD is expected to hover between 1.3600 and 1.3750 as traders digest the Fed’s decision and BoE’s tone. If the Fed confirms a 25bps cut and delivers a dovish outlook, GBP/USD could gain further ground and attempt a retest of the 1.3788 high.
A hawkish surprise, however, could spark a temporary pullback to the 1.3500–1.3550 zone.
Looking into the medium term, with the BoE on hold and the Fed entering an easing cycle, the pound may continue to benefit from the yield gap.
However, inflation persistence in the UK could cap any aggressive upside, especially if growth data disappoints in the coming months.
