GBP/USD Holds Near 1.3500 as Dollar Awaits US CPI and Fed Signals

GBP/USD holds near 1.3500 as traders await US CPI data, Fed rate signals and oil-market risks, with inflation likely to shape the Pound-Dollar outlook.

GBP/USD traded near 1.3500 in Asian hours on Wednesday as investors waited for July U.S. inflation data, a report that could influence expectations for the Federal Reserve’s September policy decision. The dollar was slightly firmer, while sterling remained sensitive to shifts in global risk appetite and energy prices.

The U.S. Consumer Price Index was scheduled for release on August 12 at 8:30 a.m. Eastern Time. Economists expected headline CPI to rise 0.1% month over month in July and 3.4% from a year earlier, compared with 3.5% annual inflation in June. Core CPI, which excludes food and energy, was forecast to increase 0.2% monthly and 2.5% annually.

US CPI Puts Fed Rate Outlook in Focus

The inflation report has become the main short-term catalyst for the dollar. Markets entered Wednesday without a clear conviction on a September rate increase. Reuters reported that traders were pricing roughly even odds of the Federal Reserve either holding rates or raising them in September. Earlier in the week, futures had placed the probability of a September hike at about 52%, down sharply from 67% a week earlier.

The CME FedWatch tool derives rate expectations from 30-day federal-funds futures, making it a widely followed indicator of market positioning. CME’s August rates recap said markets were pricing one Fed rate increase for the remainder of 2026, compared with two before the July policy meeting.

Several factors are keeping the inflation outlook uncertain:

• July headline CPI was expected at 3.4% year over year.
• Core inflation was forecast at 2.5%.
• Higher energy prices remain an important inflation risk.
• Fed officials continue to weigh inflation against weaker economic activity.

Boston Fed President Susan Collins also said Wednesday that she would support a September increase if inflation remains elevated, adding to the policy uncertainty.

Sterling Faces Energy and Risk Pressures

Sterling has its own policy backdrop. The Bank of England held Bank Rate at 3.75% on July 30 by a 6-3 vote. Three policymakers preferred a 25-basis-point increase to 4%, reflecting concerns about inflation risks from higher energy costs. The next scheduled policy decision is September 17. UK inflation stood at 2.6% in June, above the Bank of England’s 2% target. The central bank has warned that elevated and volatile energy prices linked to the Middle East conflict could push inflation higher.

Geopolitical developments are therefore important for GBP/USD through both the dollar and energy markets. Renewed tensions involving Iran and attacks affecting regional shipping have helped lift oil prices, with Brent crude reaching $89.69 on Wednesday, according to Reuters. Higher oil prices can complicate the inflation outlook for both central banks.

GBP/USD Outlook Depends on Inflation Data

Scotiabank strategists said sterling’s recent moves remain closely linked to options-market risk reversals, with protection against a weaker Pound becoming less expensive. That indicates reduced demand for downside hedges, although it does not guarantee a sustained GBP/USD advance. The 1.3500 area remains a key near-term reference point. A softer U.S. CPI reading could reduce expectations for Fed tightening and support GBP/USD, while stronger inflation could increase demand for the dollar and pressure the pair lower.

For now, GBP/USD is being driven less by a decisive Pound selloff than by a narrow contest between U.S. rate expectations, UK monetary policy and geopolitical risk. The inflation data will provide the next major test. If price pressures prove persistent, the dollar could gain further support; if inflation cools, sterling has room to regain ground above 1.3500.