GBP/USD Price Holds 1.35 as Fed Rate Cut Bets and BoE Policy Divergence Drive Outlook

GBP/USD Holds 1.35 as CPI Data and Central Bank Policy Shape Market Outlook

Sterling Struggles Against Dollar Near Support

The GBP/USD pair trades around 1.3520–1.3540, consolidating after testing lows of 1.3493. A key support zone lies at 1.3470–1.3480, levels that traders are monitoring closely ahead of U.S. CPI figures and the Bank of England’s upcoming policy decision. The pound has rebounded from September’s earlier sell-off driven by UK fiscal concerns but remains capped below resistance at 1.3595–1.3620, making the short-term battle one of tight consolidation within defined technical bands.

US Inflation Data Sets the Stage for Fed Cuts

The U.S. August CPI rose 0.4% MoM, higher than the 0.3% expected, with headline inflation steady at 2.9% YoY, while core CPI remained at 3.1%. Despite the higher headline print, markets priced in a 94% probability of a 25-basis-point Fed cut next week, supported by weaker job data and a 0.1% drop in PPI. Traders see little justification for a 50 bps cut, but multiple cuts remain priced through 2025, with nearly 70 bps of easing expected by year-end. This has weakened the dollar’s broader support, allowing sterling to stabilize above 1.35 even as inflation signals remain mixed.

Bank of England Policy and UK Macro Headwinds

The Bank of England is set to hold its rate at 4.00% on September 18 after delivering five cuts earlier this year. Weakening momentum in the UK economy — with July GDP expected to stagnate after June’s 0.4% growth — limits the central bank’s flexibility. Housing data adds to pressure, with the RICS Housing Price Balance falling to -19% in August, its weakest in nearly two years. Sticky UK wage growth keeps inflation elevated, but slowing activity reinforces the case for cuts later in 2025. This policy divergence with the Fed, where easing is imminent, is giving GBP/USD a modest tailwind.

Technical Picture: Symmetrical Triangle Consolidation

On the charts, GBP/USD trades inside a symmetrical triangle, consolidating above the 50-day moving average. Immediate resistance sits at 1.3562–1.3595, with a breakout opening the path to 1.3750, July’s high. On the downside, a decisive break below 1.3520 would expose the 200-SMA near 1.3477 and deeper support at 1.3446. RSI at 44 reflects softening momentum, suggesting traders are cautious, with positions skewed toward range-bound strategies until a clear macro trigger breaks the consolidation.

Market Sentiment and Positioning

Sterling’s rebound reflects not only Fed rate cut expectations but also relative resilience in UK assets. Options markets show a positive shift in GBP risk pricing, while speculative positioning has turned more neutral after weeks of bearish bias. The divergence between U.S. easing and BoE caution underpins GBP/USD’s base near 1.35, though a stronger-than-expected CPI print today could test that resilience. Equity market strength has further supported sterling, with UK-US yield spreads widening slightly in the pound’s favor.

Verdict on GBP/USD

The pair remains trapped between 1.3480 support and 1.3595 resistance, awaiting catalysts from U.S. CPI and central bank meetings. A dovish Fed paired with a steady BoE would likely push GBP/USD toward 1.3620–1.3750, while hotter inflation or weaker UK GDP could drag it back below 1.3470, exposing 1.3430. Given fundamentals and positioning, the outlook leans cautiously Bullish, with buyers defending 1.35 and Fed easing prospects outweighing near-term UK macro weakness.

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