Decreasing Brent crude prices have alleviated inflation concerns in the UK, leading to a shift in expectations regarding Bank of England rate hikes, now anticipated for 2027. Markets are pricing in minimal tightening for September, which maintains economists’ confidence that the Bank of England will keep rates at 3.75%. Foreign exchange traders are anticipating Federal Reserve Chair Kevin Warsh’s upcoming speech at Jackson Hole for insights regarding the trajectory of US interest rates. GBP/USD experiences a slight uptick following two consecutive days of declines, currently hovering near 1.3600 in the Asian trading session on Friday. However, the British Pound may encounter headwinds as recent declines in Brent crude oil prices ease immediate inflation concerns. This shift has resulted in money markets adjusting their expectations for the Bank of England’s next interest rate hike, moving it from late 2026 to early 2027.
According to LSEG pricing data, financial markets indicate a mere 24 basis points of policy tightening anticipated by December, with an increase to 36 basis points projected 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 regarding a rate hike prompted by concerns over a potential escalation of conflict between the US and Iran, the consensus among economists is that interest rates will remain stable at 3.75% until the end of the year. Underpinning this outlook is a mixed economic backdrop: UK inflation accelerated to 2.9% in July, primarily fuelled by rising household energy bills, and is projected to edge higher toward year-end, even as the labour market continues to display underlying weakness.
Strategists 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 shifting their attention to the annual economic symposium in Jackson Hole, Wyoming. Market participants are closely observing an impending address by Federal Reserve Chairman Kevin Warsh, seeking indications that may illuminate the trajectory of US monetary policy and interest rates. Strategists 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.
In the daily chart, GBP/USD is positioned at 1.3600. The pair maintains a constructive bullish bias as it trades above both the nine- and 50-period Exponential Moving Averages, thereby ensuring that the recent advance remains technically supported. The 14-period Relative Strength Index around 61 indicates a position in positive territory without reaching overbought levels, suggesting that upside momentum is sustained while allowing for additional gains if buyers maintain their influence. On the downside, immediate support is located at the near-price nine-period EMA at 1.3593, with a more substantial layer of demand appearing at the 50-period EMA around 1.3478 should a corrective pullback occur. As long as GBP/USD maintains its position above these moving-average supports on a closing basis, the overarching bullish sentiment is expected to continue. Any decline toward the EMA cluster should be interpreted as a potential buying opportunity rather than an indication of a trend reversal.
