Pound Sterling Starts the Week Strong, Near 1.3480 Against USD as Traders Eye Key Data

Pound Sterling Surges to 1.3480 as Traders Bet on Fed Rate Cuts

Pound Sterling (GBP) is enjoying a strong start to the week, rising against the US Dollar (USD) and touching a level near 1.3480. The currency pair has extended its five-day winning streak, supported by continued weakness in the US Dollar, which has been undermined by growing expectations that the Federal Reserve (Fed) will soon cut interest rates.

The US Dollar Index (DXY), which measures the value of the Greenback relative to six major currencies, is down 0.17%, hovering near the 98.00 level. The anticipation of monetary easing from the Federal Reserve is weighing heavily on the USD as traders position themselves for the upcoming policy meeting in September.

Fed Rate Cut Expectations Weigh on the Greenback

Market sentiment has shifted towards a more dovish outlook for the US Federal Reserve, with many market participants now betting on interest rate cuts in the near term. According to the CME FedWatch tool, there is an 88% probability that the Fed will lower interest rates by 25 basis points (bps) to a range between 4.00% and 4.25% at its September meeting.

This shift in sentiment comes as US economic data, particularly labor market conditions, show signs of slowing down. The most recent Nonfarm Payrolls (NFP) report for July was weaker than expected, reinforcing concerns about the strength of the labor market and increasing expectations that the Fed will ease its monetary policy.

Fed Governor Michelle Bowman’s Rate Cut Prediction Adds Weight

Fed Governor Michelle Bowman added fuel to the dovish narrative over the weekend, stating that she now expects three interest rate cuts within the current year. Bowman’s comments, made during the Kansas Bankers Association meeting, were in response to the weak NFP report, which she said has made the case for a more accommodative Fed policy even stronger.

The growing confidence in the Fed's dovish stance is contributing to the USD’s underperformance and supporting the Pound Sterling’s rally. Traders are now closely watching the upcoming US Consumer Price Index (CPI) and UK jobs data, which will be crucial in shaping expectations for future policy moves.

Eyes on UK Jobs and US CPI Data

Looking ahead, the focus is shifting to the key economic data releases scheduled for this week. The UK jobs report is expected to show the health of the British labor market, while the US CPI data will be closely scrutinized for further clues about inflation trends in the US. These data points could have a significant impact on market sentiment and influence both the Pound and the US Dollar in the coming days.

Outlook for GBP/USD: Will 1.3500 Hold?

With Pound Sterling’s continued strength and the US Dollar under pressure, the GBP/USD pair may attempt to break above the 1.3500 resistance level. However, much will depend on the outcome of the key economic data scheduled for release this week. If inflationary pressures in the US remain subdued, the probability of Fed rate cuts will likely increase, providing further support for the Pound.