GBP/USD began the week positively, trading near 1.3100 as the US Dollar weakened due to concerns about the US economy. Divergence in expectations between the Federal Reserve and the Bank of England further supported the currency pair.
Last week, the US Consumer Price Index fell by 0.1%, with core CPI increasing by 2.8% year-on-year, below forecasts. This has led to expectations of 90 basis points of rate cuts by the Federal Reserve by year-end, while the Bank of England faces a lower likelihood of rate cuts.
Outlook For GBP USD
The outlook for GBP/USD remains optimistic, although traders await key macroeconomic data from the UK, including jobs and inflation reports. This week will also see the release of US Retail Sales data and remarks from Fed Chair Jerome Powell, which are expected to influence the US Dollar.
So far, the pair has continued to benefit from the contrast in monetary policy assumptions between the two central banks. With US inflation data coming in lighter than expected, conditions have become more favourable for speculation around accelerated rate cuts from the Fed. A monthly decline in headline CPI, however minor at -0.1%, paired with the softening year-on-year core figure, has prompted markets to price in further easing. The adjustment in expectations—now hovering around 90 basis points of cuts by December—has weighed heavily on the Dollar.
Bailey and his committee, on the other hand, face a different picture. The data from the UK has remained mixed, pushing rate cut expectations in the UK much further out. It’s not that pricing for UK monetary easing has vanished entirely, but it no longer anchors near-term positioning. That asymmetry in outlooks is what traders are currently leaning on, keeping spot GBP/USD closer to the upper end of its recent range.
However, positioning into this week may demand a more measured approach. The UK labour market figures—particularly wage growth—will test the narrative. If earnings remain sticky, or worse, broaden unexpectedly, pressure may tilt towards a further delay in any pivot from the Bank of England. Inflation numbers due shortly after could reinforce or challenge that theme. For now, the door appears open for one more hike to remain on the table, even if that path becomes politically uncomfortable.
Powell And US Retail Sales
On the other side, Powell’s remarks and the upcoming US retail sales data complicate matters slightly. Poor retail sales would bolster the view that consumption is cooling and that the disinflation trend is broadening. Any indication from Powell that dovish sentiment is gaining traction inside the committee would support the momentum behind the recent Dollar softness.
Volatility may spike into those releases, but directionality shouldn’t be assumed. Short-term rates pricing is sensitive to data at this point—not just in terms of direction, but also the magnitude of shifts. Should we observe any upside surprise in US spending or tone-deafness from Powell regarding softer inflation, Dollar shorts may face pressure.
So, in the near term, what matters for the pair is sensitivity to incoming data prints rather than the broader macro narrative. We may continue to see episodes of sharp, knee-jerk reactions—something leveraged participants should factor into risk planning. Meaningful levels above 1.3100 could attract sellers unless the UK’s own data delivers a fresh set of positive surprises. That remains uncertain.
Vol positioning has flattened slightly, with implieds underpricing realised over the last couple of weeks, suggesting some complacency might have crept in. That typically doesn’t last when policy divergence trades are driving flows. Preparing for tactical position shifts and aligning to intraday developments remains—not for the cautious—but for those watching closely.
