GBP/USD exchange rate falls from two-month high in September
The pound dollar exchange rate sank below 1.34 on 1 September after UK bond yields rose again, reigniting concerns over the government’s autumn budget in November.
The pound recovered into the 1.34 mid-range on 3 September amid sliding UK bond yields and another decline in US job openings, which dented the dollar.
A dismal US employment report undermined the dollar on 5 September, propelling the pound above the 1.35 benchmark. The non-farm payrolls print for August revealed just 22,000 new jobs added, fuelling speculation the Federal Reserve could reduce interest rates by as much as 75 basis points before 2025 concludes.
The pound rose to around 1.358 against the dollar on 9 September amid improved risk appetite and lingering payrolls-related headwinds, before arresting its gains.
Having slid to a fraction above 1.35 on hotter-than-expected US inflation data for August, the pound dollar rate recovered into the mid-range on 11 September. Despite stronger inflation, investors continued to price in further Federal Reserve rate cuts this year.
The pound broke through the 1.36 benchmark against the dollar on 15 September. Expectations that the Bank of England (BoE) will maintain its current policy stance through the rest of the year bolstered the UK currency.
The pound hit a two-month high against the dollar the following day as UK wage growth remained stubbornly high between May and July. Meanwhile, the dollar tumbled after the US Senate narrowly approved Donald Trump ally Stephen Miran’s appointment to the Federal Reserve’s board of governors.
The pound dollar rate was stable on 17 September after data showed UK headline inflation held steady at 3.8% in August, strengthening expectations that the BoE would keep rates unchanged. The US currency rebounded after the Fed lowered its key interest rate by 0.25 points in the central bank’s first cut this year.
The pair dipped into the 1.35 mid-range the following day in the wake of the BoE’s interest rate decision. As expected, the central bank voted to keep rates unchanged, but pressure was applied to the pound by Governor Andrew Bailey, who signalled the central bank’s current rate-cutting cycle has not finished.
The pound extended its losses versus the dollar on 19 September after a sharp rise in UK government borrowing overshadowed upbeat retail sales figures, causing the UK currency to fall below 1.35.
Easing UK economic concerns helped the pound to edge above 1.35 on 22 September. Sentiment towards the UK currency improved after Chancellor Rachel Reeves pledged to deliver the government’s growth plan, having approved a second runway at Gatwick.
The pound fell into the 1.34 mid-range against the dollar on 24 September amid a downbeat UK economic outlook.
The UK currency extended its losses the following day, slumping to a three-week low around 1.332, after the Confederation of British Industry’s (CBI) distributive trades survey showed a persistent contraction in retail activity. Meanwhile, the dollar was bolstered by a series of stronger-than-expected data releases that dampened speculation over aggressive Federal Reserve rate reductions, including a higher Q2 GDP revision.
The pound dollar rate clawed back some of its losses on 26 September, edging above 1.34 amid expected policy divergence between the BoE and the Federal Reserve. Meanwhile, the dollar drifted lower following the release of the core PCE price index – the Fed’s preferred gauge of inflation. August’s reading mirrored forecasts at 2.9% year-on-year, reducing expectations for more aggressive rate cuts from the Fed.
The pair firmed into the 1.34 mid-range on 29 October, supported by BoE Deputy Governor Dave Ramsden’s suggestion that UK inflation may continue rising for a while. Conversely, the dollar was pressured by concerns that the US government could shut down.
The pound dollar exchange rate ended the month at around 1.344.
GBPUSD: 3-Month Chart
Looking ahead
Influential data from the UK economy in October: Claimant Count Change (14 October), ILO Unemployment Rate (14 October), Consumer Price Index (22 October), Retail Sales (24 October), S&P Global Composite PMI (24 October).
Having slashed interest rates in September, the Fed is poised to make two more cuts in 2025, with the first anticipated when it makes its next policy announcement on 29 October.
Influential data from the US economy in October: ADP Employment Change (1 October), ISM Manufacturing PMI (1 October), Average Hourly Earnings (3 October), Nonfarm Payrolls (3 October), ISM Services PMI (3 October), Michigan Consumer Sentiment Index (10 October), Consumer Price Index (15 October), Producer Price Index ex Food & Energy (16 October), Retail Sales Control Group (16 October), S&P Global Composite PMI (24 October), GDP (30 October), Core Personal Consumption Expenditures Price Index (31 October).