GBP/USD Holds Above 1.3550 as Fed Hike Odds Fall to 31%

GBP/USD holds above 1.3550 as Fed hike odds fall to 31%. UK data and BoE policy signals could drive sterling’s next move against the US dollar.

The British pound strengthened against the US dollar on Monday, with GBP/USD trading near 1.3555 during early European hours. Sterling found support as softer US economic data reduced expectations for another Federal Reserve interest-rate increase in September. Investors are now turning toward a busy UK economic calendar, with employment and inflation figures due later this week that could shape the Bank of England’s policy outlook.

Softer US Data Pressures the Dollar

US consumer spending showed signs of losing momentum in July. Retail sales declined for the first time in nine months as the boost from large tax refunds faded, according to the US Census Bureau. The weaker reading followed unexpected job losses in the previous month and relatively subdued inflation data, strengthening the case for the Federal Reserve to remain on hold.

Market pricing reflects that shift. According to the CME FedWatch Tool, traders now see a 31% probability of a Fed rate hike at the September 15-16 meeting, down from 35% immediately after the retail-sales report.

BMO Capital Markets economist Sal Guatieri said the data point to a meaningful slowdown in real consumer spending growth during the third quarter. Combined with weaker employment and softer core inflation, the figures have increased expectations that policymakers will maintain their current stance.

• Fed hike odds for September: 31%
• GBP/USD near Monday’s high: 1.3555
• US retail sales: First monthly decline in nine months

BoE Hawkish Tone Supports Sterling

Sterling is also benefiting from a relatively firm outlook for UK monetary policy. Bank of England Chief Economist Huw Pill said stronger-than-expected economic growth supports the argument for maintaining sufficiently restrictive borrowing costs to bring inflation back toward its target.

The UK economy expanded 0.4% in the second quarter, according to the latest figures cited by Pill. That performance suggests the economy has avoided the sharp downturn some investors had feared, giving the BoE greater flexibility to keep its policy stance restrictive if inflation remains elevated.

Scotiabank strategists said recent BoE communication has remained hawkish despite a limited flow of fresh economic releases. Pill’s comments have reinforced expectations that borrowing costs may need to stay higher for longer, providing an important source of support for the pound.

GBP/USD Technical Levels in Focus

Technically, GBP/USD retains a constructive bias. The pair remains above both its 100-day simple moving average and the 20-day Bollinger middle band, indicating that buyers continue to control the broader near-term trend.

The 14-day Relative Strength Index stands at 64, showing positive momentum without yet reaching traditionally overbought territory. A move above the upper Bollinger band near 1.3595 could expose the May 8 high at 1.3637.

On the downside, the 1.3435 area is the first important support, followed by the 100-day SMA around 1.3415. A decisive break below those levels could shift attention toward the lower Bollinger band near 1.3273.