GBP/USD Price Holds Firm at 1.3500 as Sterling Balances Inflation Risks and Fed Policy

GBP/USD Holds at 1.3500 as Markets Balance Peace Hopes and Policy Risks

The GBP/USD currency pair is trading tightly around 1.3500, a level that has become the fulcrum for sterling traders navigating both geopolitics and monetary policy. The Pound erased early-session weakness as reports circulated about possible talks in Moscow between Donald Trump and Volodymyr Zelenskiy, following last week’s Trump–Putin meeting. A genuine path toward peace between Russia and Ukraine has lifted risk sentiment across global markets, but for sterling, the bigger test lies in the data calendar and central bank guidance set to unfold over the coming days.

UK Inflation Pressures and the Bank of England’s Dilemma

The UK July CPI is expected at 3.7%, edging slightly higher from June’s 3.6%, while services inflation is projected at 4.8%, underscoring how sticky underlying price growth remains. Even as the Bank of England has cut rates earlier this year, economists now anticipate that the Bank Rate will finish 2025 at 3.75%, implying one additional 25-basis-point cut before year-end. Yet markets are growing skeptical that the BoE can cut aggressively in the face of persistent inflation pressures, particularly with gilt yields on the rise. The 10-year UK gilt yield has climbed to 4.73%, its highest level since May, while the 2-year yield has surged to 3.97%, signaling a market repricing toward stickier inflation expectations. This backdrop explains why sterling has remained resilient even as the Federal Reserve prepares to loosen policy further.

Federal Reserve Rate Cut Expectations and Dollar Impact

On the U.S. side, traders are betting heavily on a September rate cut. Fed Governor Michelle Bowman reiterated her projection for three rate cuts in 2025, emphasizing a pivot toward the employment mandate as inflation data cools. The CME’s FedWatch tool reflects 80%+ odds of a September cut, with markets pricing nearly 90% chances of another move in December. U.S. housing data added nuance: Housing Starts rose 5.2% to 1.428 million in July, beating estimates, while Building Permits slipped to 1.354 million, underscoring uneven momentum in the construction sector. If Chair Jerome Powell uses Jackson Hole to confirm the dovish tilt, the dollar could weaken further, giving GBP/USD room to retest the August 18 peak at 1.3565 and the psychological 1.3600 threshold.

Technical Dynamics Around GBP/USD

Sterling’s rally from a summer low of 1.3136 to the current 1.3500 has been impressive, aided by risk-on flows and a softer greenback. The pair has cleared resistance at 1.3425, with both the 25-day EMA and 50-day EMA crossing higher. The RSI remains elevated but flat, pointing to sideways consolidation. A push above 1.3565 would invite a test of 1.3600, and potentially the 1.3680–1.3700 zone flagged by institutional desks. On the downside, support is well defined: the 50-day SMA sits at 1.3497, with the 20-day SMA at 1.3416, followed by the 1.3400 floor. A failure to hold above these levels risks a reversal toward 1.3401, where sellers would likely reassert control.

Relative Strength of the British Pound Across Majors

The broader foreign exchange landscape shows sterling performing competitively. Against the U.S. Dollar, the Pound is holding steady, but its strongest move this week has been against the Australian Dollar, where it is up 0.36%. GBP is marginally weaker against the Swiss Franc, down 0.30%, while essentially flat against the euro at +0.01%. These relative moves reflect sterling’s middle ground — not as strong as currencies benefiting directly from rate differentials, but more robust than commodity-linked peers under pressure from softer energy prices and slowing Chinese demand.

Geopolitical Catalysts That Could Reshape GBP/USD

Beyond central banks, geopolitics remain crucial. Trump’s evolving diplomacy with Putin and Zelenskiy is already buoying markets with hopes of de-escalation. A concrete peace framework would likely lift global risk appetite, weaken the dollar’s safe-haven bid, and support GBP/USD toward 1.3620 or higher. Yet the absence of progress or a breakdown in talks could swiftly reverse sentiment. Traders are also monitoring energy markets, as falling Brent (BZ=F) prices around $65.85 lower UK import costs but also risk signaling weaker global demand, which could dampen sterling via growth channels.

Strategic Assessment: GBP/USD Positioning

At 1.3500, GBP/USD sits at a crossroads. Sterling bulls are emboldened by resilient inflation and hawkish undertones from the Bank of England, while dollar bears are anticipating Powell’s confirmation of cuts at Jackson Hole. If the UK CPI comes in hotter than the expected 3.7%, markets will likely reprice BoE risk toward fewer cuts, propelling GBP/USD toward 1.3600–1.3680. Conversely, if inflation softens and Powell downplays dovish expectations, the pair could slip back to 1.3450 and ultimately toward 1.3400. On balance, the tilt remains constructive. The combination of sticky UK inflation, higher gilt yields, and a Fed edging toward rate cuts favors sterling. At current levels, GBP/USD looks more like a buy on dips than a sell, with 1.3600 the immediate bullish target.

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