Pound Sterling Gains as Fed Rate Cut Expectations Boost GBP/USD

The Pound Sterling Fed rate cut expectations theme is driving the currency higher, with GBP/USD climbing toward 1.3565 in Wednesday’s European session. The British currency is outperforming major peers as traders anticipate fresh UK GDP data and increased speculation that the Federal Reserve will cut interest rates in September.

At the same time, the US Dollar Index (DXY) has fallen to 97.70 — its lowest in two weeks. According to the CME FedWatch Tool, the probability of a September rate cut has risen sharply to 94%, compared to 86% earlier this week.

Fed Rate Cut Bets Push Pound Sterling Higher

The Pound Sterling Fed rate cut expectations story intensified after the latest US Consumer Price Index (CPI) showed inflation mostly in line with forecasts. Headline CPI rose 2.7% year-on-year, slightly below the expected 2.8%. Core CPI increased by 3.1%, above the projected 3% and the prior 2.9% reading.

This data eased fears of tariff-driven price pressures and fueled expectations of Fed policy easing. However, analysts caution the September cut is not guaranteed, as one more set of jobs and inflation data will be released before the meeting.

UK GDP Release Could Test Sterling’s Momentum

Traders are also watching Thursday’s preliminary UK Q2 GDP report. Economists expect just 0.1% quarterly growth, a sharp slowdown from Q1’s 0.7% expansion. Annual growth is projected at 1%, below the Bank of England’s (BoE) recent 1.25% forecast.

Weaker growth could pressure BoE policymakers, especially with inflation forecasts rising. Last week, the BoE lifted its one-year forward CPI outlook from 2.4% to 2.7%.

Labor Market Weakness Adds to BoE Concerns

Recent labor data showed vacancies falling by 44,000 to 718,000 between May and July. Payrolled employees dropped by 8,000 in July. According to official surveys, some firms are avoiding new hires due to higher employer social security contributions.

Technical Analysis: GBP/USD Holds Bullish Structure

Technically, GBP/USD remains bullish, trading above the 20-day Exponential Moving Average (EMA) at 1.3425. The 14-day Relative Strength Index (RSI) is approaching 60, with a break above this level likely to spark more buying.

On the downside, support lies at 1.3140, while resistance is at the July 1 high near 1.3790.

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