GBP/USD rises as anticipated, with the expected mild US inflation data likely to maintain the Federal Reserve’s current stance. US Nonfarm Payrolls increased by 162,000, elevating expectations for a September Fed rate hike to approximately 58.3%. Persistent inflation and fiscal concerns are influencing market expectations for further rate hikes by the Bank of England. GBP/USD inched higher following minor losses the previous day, trading around 1.3520 on Monday. The currency pair gains ground as the US Dollar struggles, possibly driven by a Goldman Sachs report emphasising that this week’s inflation data will be pivotal.
Goldman Sachs anticipates that a favourable Consumer Price Index reading will maintain the Federal Reserve’s current stance, despite the robust job figures from August eliminating a significant barrier to a possible rate hike. According to the US Bureau of Labour Statistics, Nonfarm Payrolls increased by 162,000 in August, significantly surpassing market expectations of 56,000 and showing an acceleration from the upwardly revised increase of 21,000 in July. Meanwhile, the unemployment rate remained unchanged at 4.1%.
Despite the current weakness of the Greenback, its downside may be limited as strength in the labour market has prompted traders to increase their rate hike expectations for September. The CME FedWatch tool indicates that the probability of a 25-basis-point Fed rate hike has increased to approximately 58.3%, a rise from the previous 50.2% prior to the jobs report. Across the Atlantic, markets are fully pricing in a Bank of England rate hike by the end of the year, with another increase anticipated by March 2027 due to ongoing concerns over UK fiscal sustainability and persistent inflation.
Analysts highlight that recent commentary from BoE officials has become more supportive for the British Pound, noting that “messaging from MPC policymakers has taken a somewhat hawkish turn.” They point in particular to “notable comments from Chief Economist Huw Pill,” who is seen “seeking to manage the extent of pricing favored by markets while still leaning toward hikes overall,” a combination that, in Scotiabank’s view, helps underpin expectations for further policy tightening and offers a constructive backdrop for GBP performance.
