The Pound Sterling (GBP) extended its recovery on Wednesday, trading near 1.3370 against the US Dollar (USD), as broad-based weakness in the Greenback boosted demand for the British currency. The move follows dovish commentary from several Federal Reserve (Fed) officials, which reinforced market expectations for further US interest rate cuts this year.
At the time of writing, the US Dollar Index (DXY) is down 0.25% at around 98.80, reflecting pressure from softening economic sentiment and renewed geopolitical concerns.
Fed Officials Signal Growing Labor Market Risks
Federal Reserve Chair Jerome Powell stated on Tuesday that the US labor market remains subdued, describing it as stuck in a “low-hiring, low-firing doldrum.” He acknowledged that while economic activity is surprising to the upside, it’s creating a disconnect with weak employment figures.
Echoing Powell’s concerns, Fed Governor Michelle Bowman and Boston Fed President Susan Collins also warned of labor market risks. Collins noted that “another 25 basis points of easing might be appropriate,” pointing to softer job conditions.
According to the CME FedWatch tool, markets are now pricing in a 94.6% chance that the Fed will cut rates by a total of 50 basis points—25 bps in both October and December—bringing the policy rate down to the 3.50%–3.75% range.
Adding to the Dollar’s woes, escalating US-China trade tensions continue to drive risk-off sentiment. China has introduced new port fees on foreign shipping, seen as retaliation for US trade restrictions, further dampening confidence in the Greenback.
GBP Mixed as BoE Rate Cut Expectations Build
Despite its gains against the US Dollar, the Pound traded mixed against other major currencies on Wednesday, with market sentiment weighed down by soft UK labor data and rising expectations of Bank of England (BoE) policy easing.
According to Reuters, money markets now price in a 46-basis-point rate cut by the BoE over its two remaining meetings in 2025. The dovish shift followed Tuesday’s labor market report, which showed that the UK ILO Unemployment Rate rose to 4.8% in the three months to August, while wage growth excluding bonuses slowed to 4.7%—its lowest since May 2022.
BoE Governor Andrew Bailey, speaking at an event in Washington, acknowledged signs of cooling in the UK labor market and weakening inflationary pressures. However, he refrained from offering specific guidance on future policy.
IMF Urges Caution on BoE Rate Cuts
While markets lean toward a more accommodative BoE stance, the International Monetary Fund (IMF) has urged caution. The IMF warned that inflation in the UK is likely to remain the highest among G7 nations over the next two years. It projects average inflation at 3.4% in 2025 and 2.5% in 2026, suggesting that premature rate cuts may risk reigniting price pressures.
Investors now await key UK economic data due Thursday, including monthly GDP and factory output for August, which could further shape expectations around monetary policy.
Technical Outlook: Head and Shoulders Pattern in Focus
GBP/USD continues to trade higher after rebounding from support at the 200-day Exponential Moving Average (EMA), currently near 1.3270. The pair has advanced toward the 1.3370 level.
However, the technical outlook remains cautious. A Head and Shoulders pattern has formed on the daily chart, signaling potential downside risks. The 14-day Relative Strength Index (RSI) is holding around 40.00—a breakdown below this level could trigger a new wave of bearish momentum.
To the downside, key support is seen at the August 1 low of 1.3140. On the upside, the next significant resistance lies at the psychological level of 1.3500.
