The Pound Sterling (GBP) extended its gains against the US Dollar (USD) during Wednesday’s European session, climbing toward 1.3370. The GBP/USD pair strengthened as the US Dollar weakened further, weighed down by dovish signals from Federal Reserve (Fed) officials and growing concerns over the US labor market.
The US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, slipped 0.25% to around 98.80 at press time.
Fed Chair Jerome Powell acknowledged on Tuesday that the US labor market remains subdued, describing it as stuck in a “low-hiring, low-firing doldrum” despite stronger-than-expected economic activity. Powell noted a growing disconnect between solid economic data and weakening employment figures.
Other Fed policymakers echoed similar concerns. Fed Governor Michelle Bowman and Boston Fed President Susan Collins flagged labor market risks, with Collins suggesting that further rate cuts—potentially another 25 basis points—may be necessary. Market pricing via the CME FedWatch tool now indicates a 94.6% chance of a 50 bps cut in the Fed’s benchmark rate before year-end.
In addition to Fed commentary, continued US-China trade tensions have weighed on the Dollar. China has introduced new port fees on ocean shipping firms, seen as retaliation for similar US-imposed charges.
GBP Mixed Ahead of UK GDP Data, BoE Rate Cut Expectations Grow
While the Pound rose against the US Dollar, it traded mixed against other major currencies on Wednesday. Market sentiment around the British currency remains cautious ahead of Thursday’s release of key UK GDP and factory output data for August.
Recent soft labor market data in the UK has fueled expectations that the Bank of England (BoE) may cut rates further this year. According to Reuters, money markets are pricing in approximately 46 basis points of BoE rate cuts over the remaining two policy meetings in 2025.
Tuesday’s UK labor report showed the ILO Unemployment Rate climbed to 4.8% for the three months to August, while Average Earnings (Excluding Bonuses) eased to 4.7% year-over-year—its lowest level since May 2022. These figures have bolstered the case for easing, reflecting weaker job demand and cooling inflationary pressures.
BoE Governor Andrew Bailey acknowledged signs of labor market softening during remarks at the Institute of International Finance event in Washington, though he offered no direct guidance on future policy moves.
Meanwhile, the International Monetary Fund (IMF) advised caution, warning against aggressive rate cuts. The IMF projects UK inflation to average 3.4% in 2025 and 2.5% in 2026—among the highest in the G7—suggesting lingering price pressures.
Technical Outlook: GBP/USD Forms Head and Shoulders Pattern
From a technical perspective, GBP/USD has extended its rebound from the 200-day Exponential Moving Average (EMA) near 1.3270. The pair is currently testing resistance near 1.3370.
However, the daily chart shows a potential Head and Shoulders pattern, signaling possible downside risk. The 14-day Relative Strength Index (RSI) remains near 40.00. A drop below this level could trigger fresh bearish momentum.
Key support lies at the August 1 low of 1.3140, while the next major resistance is at the psychological 1.3500 level.
