GBP/USD Dips to 1.3500 Mark as Traders Adjust Fed Rate Cut Expectations

The GBP/USD pair softened and traded near 1.3500 during the early European hours on Tuesday. The Pound (GBP) faced pressure as the US Dollar (USD) gained some traction, largely due to diminishing bets for aggressive Fed rate cuts.

US Dollar Gaining Momentum as Fed Rate Cut Odds Fade

Recent economic data from the US, including the Producer Price Index (PPI) report, showed a sharp rise in inflationary pressures. This has led traders to revise their expectations for the US Federal Reserve’s (Fed) monetary policy, now anticipating just one rate cut for the rest of 2025. With market expectations recalibrating, the US Dollar strengthened, supporting its upward move against the British Pound.

UK’s Q2 GDP Report Adds Complexity to Bank of England’s Rate Outlook

On the UK side, the Q2 Gross Domestic Product (GDP) report showed a slowdown in growth to 0.3%, down from 0.7% in Q1. Although it was weaker than expected, this reading has provided some support to the Pound, as it complicates the Bank of England’s (BoE) decision to implement additional rate cuts. The BoE had been facing pressure to ease further, but stronger-than-expected growth in GDP suggests the central bank may face challenges in aggressively pursuing monetary easing.

Traders Await UK Inflation Data for Further Cues

Looking ahead, traders are focusing on the upcoming UK Consumer Price Index (CPI) data for July, due for release later on Wednesday. A higher-than-expected inflation print could lead to renewed strength in the British Pound, while a softer print may fuel concerns that the UK economy remains under pressure.

Focus on Fed’s Jackson Hole Symposium for Next Moves

Additionally, the market is eyeing the annual Jackson Hole Economic Symposium later this week, where Fed Chair Jerome Powell’s speech could offer further insights into the Fed’s future policy stance. Any signs of continued political interference in the Fed’s decision-making process could add volatility to the USD and potentially serve as a tailwind for the GBP/USD pair.

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