British Pound edges higher despite delaying BoE rate hike expectations
- Decreasing Brent crude prices have softened UK inflation concerns, pushing BoE rate hike expectations into 2027.
- Markets price in minimal tightening for September, keeping economists confident the BoE will hold rates at 3.75%.
- FX traders await Federal Reserve Chair Kevin Warsh's Jackson Hole speech for directional hints on US interest rates.
GBP/USD inches higher after two days of losses, trading around 1.3600 during the Asian hours on Friday. However, the British Pound (GBP) may encounter headwinds as recent declines in Brent crude oil prices ease immediate inflation concerns. This shift has led money markets to push back expectations for the Bank of England's (BoE) next interest rate hike from late 2026 into early 2027.
According to LSEG pricing data, financial markets reflect just 24 basis points of policy tightening by December and 36 basis points by February 2027. Ahead of the BoE's September meeting, less than 4 basis points are priced in, translating to roughly a 15% probability of a rate increase.
Despite earlier market speculation of a rate hike driven by fears over potential US-Iran conflict escalation, most economists maintain that interest rates will hold steady at 3.75% through the end of the year. Underpinning this outlook is a mixed economic backdrop: UK inflation accelerated to 2.9% in July, primarily fueled by rising household energy bills, and is projected to edge higher toward year-end, even as the labor market continues to display underlying weakness.
Pound tone softens as quiet UK calendar tempers BoE tightening bets
Strategists at Scotiabank point out that the UK data backdrop offers little to drive the Pound in the near term, with “the domestic calendar has been limited” and “the absence of any major releases ahead of next week’s final PMI’s” keeping traders on the sidelines. They add that “messaging from the BoE has been equally limited,” while highlighting “the modest softening of tightening expectations observed over the past week or so,” which has further weighed on sentiment toward GBP.
Meanwhile, forex traders are turning their focus to the annual economic symposium in Jackson Hole, Wyoming. Market participants are closely monitoring an upcoming speech by Federal Reserve Chairman Kevin Warsh, searching for potential signals regarding the direction of US monetary policy and interest rates.
Markets seen complacent on Jackson Hole risk despite Dollar bid
Strategists at Scotiabank caution that, while history shows Jackson Hole “can have a significant impact on market pricing,” current option markets are sending a different signal. They note that “1w implied vols are running well below recent averages,” which in their view “suggests markets may be a little complacent about the Warsh’s speech and the potential impact on markets,” even as the USD edges firmer into the event.
Technical Analysis:
In the daily chart, GBP/USD trades at 1.3600. The pair holds a constructive bullish bias as it trades above both the nine- and 50-period Exponential Moving Averages (EMAs), keeping the recent advance technically supported. The 14-period Relative Strength Index (RSI) around 61 sits in positive territory without being overbought, hinting that upside momentum remains in place while leaving room for further gains if buyers stay in control.
On the downside, immediate support is found at the near-price nine-period EMA at 1.3593, with a deeper layer of demand emerging at the 50-period EMA around 1.3478 if a corrective pullback unfolds. As long as GBP/USD holds above these moving-average supports on a closing basis, the broader bullish tone is likely to persist, with any dip toward the EMA cluster viewed as a potential buy-the-dip area rather than a trend reversal signal.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
Mitrade makes no representation or warranty as to the accuracy or completeness of the information provided and accepts no liability for any loss arising from reliance on such information.
Recommended Articles
