The GBP/USD pair edged lower during the Asian session on Monday, extending its weakness toward 1.3495 as renewed US Dollar (USD) demand put pressure on the major pair. Despite the selling bias, dovish signals from the Federal Reserve (Fed) may help cushion deeper losses.
With traders closely watching upcoming US macroeconomic data, the short-term trajectory for the cable remains highly dependent on both monetary policy expectations and shifting market sentiment. This well-researched article from Primeber Group gives a full perspective on the subject with insights from one of their brokers, Dennis M Novak.
Renewed US Dollar Demand Weighs on GBP/USD
The US Dollar Index (DXY) stabilized after last week’s volatility, regaining traction amid cautious sentiment. The renewed bid for the Greenback weighed on GBP/USD, pushing the pair beneath the psychologically significant 1.3500 handle.
Investors often view this level as an important technical support zone, and sustained trading below it could reinforce bearish momentum.
However, the downside of cable may remain limited in the near term. Market participants are weighing the latest remarks from Fed Chair Jerome Powell, who, at the Jackson Hole symposium, signaled that the central bank remains on track to cut interest rates as early as September.
This dovish tilt has tempered aggressive US Dollar buying, creating a more balanced risk environment for GBP/USD.
Powell Signals Imminent Fed Rate Cuts
Powell highlighted that the US economy faces a “challenging situation,” with risks becoming more complex. While inflation risks have shifted slightly to the upside, the labor market is showing clear signs of softening.
This mix strengthens the case for a pre-emptive Fed rate cut, potentially aimed at cushioning downside risks to employment while avoiding excessive monetary tightening.
According to the CME FedWatch Tool, traders now price in an 85% probability of a Fed rate cut at the September policy meeting. This sharp repricing in interest rate expectations has prevented the US Dollar from rallying aggressively despite recent demand.
Lower rates typically reduce the appeal of the Greenback by narrowing yield differentials, particularly against currencies where central banks remain cautious about easing.
The release of upcoming US economic indicators, such as New Home Sales and the Chicago Fed National Activity Index, will be closely monitored for fresh evidence on the state of growth and inflation. Softer-than-expected readings could reinforce Powell’s dovish guidance, applying additional pressure on the Dollar and offering some relief to GBP/USD buyers.
UK Inflation Trends Support the Pound
On the UK front, the Pound Sterling (GBP) found partial support from hotter-than-expected July inflation data. The stronger consumer price index reduced the likelihood that the Bank of England (BoE) will pursue further aggressive rate cuts in the short term.
Earlier this month, the BoE trimmed its Bank Rate from 4.25% to 4.00%, describing the move as part of a “gradual and careful” approach to monetary easing.
The hotter inflation reading has since altered market expectations, with the next potential quarter-point cut not fully priced in until March 2026. This suggests the BoE may remain on pause for an extended period, providing relative policy divergence compared to the Fed.
Traders often see such divergence as a driver of currency moves, and in this case, it could lend medium-term resilience to GBP/USD even as short-term Dollar demand caps gains.
Technical Outlook for GBP/USD
From a technical analysis perspective, GBP/USD is testing support near 1.3495, with further downside risks if bears maintain momentum. A clean break below this threshold may expose the 1.3450 region, followed by deeper support around 1.3400.
Momentum indicators, including the Relative Strength Index (RSI), remain in neutral territory, suggesting room for further downside without triggering oversold conditions.
On the upside, immediate resistance lies at the 1.3550–1.3570 zone, with a sustained move above this area needed to confirm a shift back toward bullish momentum. A break beyond 1.3600 could attract fresh buying interest, particularly if US data disappoints or Fed rhetoric turns more dovish in the coming days.
Conclusion
The GBP/USD exchange rate is currently under modest selling pressure, holding near 1.3495 amid renewed US Dollar demand. However, expectations of a Federal Reserve rate cut in September are likely to cap aggressive downside moves.
On the UK side, firmer inflation data have reduced the odds of further BoE easing, helping provide a buffer against sharper Sterling losses.
In the near term, the pair’s trajectory hinges on incoming US data and evolving monetary policy narratives. As traders weigh the Fed’s dovish stance against the Dollar’s defensive demand, GBP/USD is likely to remain volatile but broadly supported above critical levels unless sentiment shifts decisively in favor of the Greenback.
