The British Pound is under pressure in early Tuesday trading, with GBP/USD retreating toward the 1.3500 level as the U.S. Dollar gains traction. Persistent U.S. inflation concerns and uncertainty around the Federal Reserve’s next move are keeping traders cautious, while upcoming U.S. labor market data and UK policy discussions add further layers of complexity.
Dollar strength caps Sterling rebound
During Asian hours, GBP/USD was last seen trading near 1.3520, paring back gains from the previous session. The U.S. Dollar strengthened as markets grew more uncertain over the Fed’s September rate decision, with inflationary pressures tempering expectations for aggressive easing. Traders will also keep an eye on the ISM Manufacturing PMI due later today for fresh clues on U.S. economic momentum.
Focus shifts to U.S. labor market and Fed outlook
This week’s labor data is expected to be pivotal for the Fed. ADP employment figures, Average Hourly Earnings, and Friday’s Nonfarm Payrolls (NFP) report for August will be closely scrutinized for signs of labor market resilience or weakness. According to the CME FedWatch tool, markets now price in an 89% probability of a 25 basis point cut at the September meeting, up from 84% last week, reflecting growing conviction in at least modest policy easing.
UK policy in spotlight as Parliament resumes
On the UK side, the return of Parliament from summer recess brings renewed attention to fiscal and monetary policy. The Treasury Committee’s questioning of Bank of England (BoE) policymakers this week could provide insight into the central bank’s stance amid persistent inflation risks.
Last week, BoE Monetary Policy Committee member Catherine Mann emphasized that interest rates should remain elevated to counter inflationary pressures, dampening expectations of imminent BoE rate cuts. This hawkish tone may lend some support to Sterling, even as the Fed narrative dominates near-term price action.
Outlook for GBP/USD
With the Fed’s policy path still in question, GBP/USD may remain range-bound in the near term. Downside risks are tied to stronger-than-expected U.S. data, which could bolster the Dollar further. However, fading prospects of additional BoE cuts may limit Sterling’s losses and provide a potential cushion above the 1.3500 psychological level.
