GBP/USD exchange rate touches 5-week high in August
The pound dollar exchange rate was directionless until 6 August, when it climbed into the 1.33 mid-range, as growing anxiety over the US economic outlook undermined the US currency.
The pound jumped into the 1.34 mid-range the following day after Bank of England (BoE) policymakers voted by a narrow margin to cut interest rates by a quarter percentage point. The central bank also upgraded its inflation outlook, leading markets to lower expectations for future cuts.
The pound edged above the 1.35 benchmark on 12 August following a stronger-than-expected UK jobs print, pouring more cold water on rate cut expectations. Meanwhile, the dollar tumbled after Donald Trump renewed attacks on Federal Reserve Chair Jerome Powell, following softer-than-expected US inflation data.
The UK currency continued its upward trajectory the next day amid diverging BoE and Federal Reserve rate cut expectations, with the US central bank facing growing pressure to loosen policy.
The pound touched a five-week high a fraction below the 1.36 level on 14 August after the UK’s GDP figures for the second quarter exceeded expectations.
The pound began sliding lower versus the dollar on 18 August, despite a hotter-than-expected UK inflation print two days later that eased expectations for BoE interest rate cuts. Initial gains faded amid investor concerns that persistently high borrowing costs could pressure the government into announcing tax increases.
On 22 August, the UK currency briefly dipped below 1.34 after the US manufacturing and services PMIs revealed stronger-than-anticipated expansions, before rebounding above 1.35. Its recovery followed Federal Reserve Chair Jerome Powell’s Jackson Hole speech, which hinted at the possibility of a rate cut, undermining dollar demand.
The pound edged higher against the dollar on 27 August amid a notable uptick in UK producer price figures for the second quarter, signalling persistent inflationary pressures. This added weight to expectations that the BoE may be cautious about lowering borrowing costs again soon.
The pound dipped against the dollar on 29 August after the US currency was bolstered by the latest core PCE price index – the Fed’s preferred inflation gauge. Core inflation ran at a 2.9% seasonally adjusted annual rate in July, meeting forecasts but higher than the previous month – and still a distance from the central bank’s 2% target. However, the print didn’t dampen expectations for the Fed to resume lowering borrowing costs in September.
The pound dollar exchange rate ended the month at around 1.3503.
GBPUSD: 3-Month Chart
Looking ahead
The BoE’s next rate decision will be announced on 18 September. With UK inflation on the rise, a cut looks increasingly unlikely. Inflation is currently 3.6% and is expected to hit 4% in September.
Influential data from the UK economy in September: Retail Sales (5 September), Claimant Count Change (16 September), Employment Change (16 September), ILO Unemployment Rate (16 September), Consumer Price Index (17 September), Retail Sales (19 September), S&P Global Manufacturing PMI (23 September), S&P Global Services PMI (23 September), S&P Global Composite PMI (23 September), Gross Domestic Product (30 September).
Traders have been pricing in a near-certainty of a 25bps reduction from the Fed’s current target rate – currently around 4.3% – on 17 September. However, there is less certainty looking ahead.
Influential data from the US economy in September: ISM Manufacturing PMI (2 September), ADP Employment Change (4 September), ISM Services PMI (4 September), Average Hourly Earnings (5 September), Nonfarm Payrolls (5 September), Producer Price Index ex Food & Energy (10 September), Consumer Price Index (11 September), Michigan Consumer Sentiment Index (12 September), Retail Sales (16 September), S&P Global Manufacturing PMI (23 September), S&P Global Services PMI (23 September), Gross Domestic Product Price Index (25 September), Core Personal Consumption Expenditures – Price Index (26 September).