The British pound (GBP) remained strong against the US dollar (USD) on Friday, with expectations of over a 1% gain for the week. This shift comes as many investors are beginning to doubt that the US Federal Reserve will implement an interest rate hike during its September meeting. Currently, the GBP/USD exchange rate is around 1.3350, showing little change for the day.
GBP/USD stabilizes as traders push for Fed rate hikes from September onwards
Although the US reported lower non-farm payrolls in June and downward adjustments for April and May, the labor market remains robust, adding 74,000 jobs in the past couple of months. Traders are now anticipating a possible rate hike in October instead of September.
New Fed Chair Kevin Warsh emphasized the Fed’s focus on managing inflation but didn’t offer clear guidance on future policies. The upcoming FOMC minutes will be analyzed closely, especially with the next US inflation report expected on July 14th.
In addition to the minutes, the ISM Services PMI is set to provide insights on inflation and employment trends. New jobless claims for the week ending July 4 are projected to rise to 219,000 from 215,000.
On the UK front, uncertainty in politics is not helping the pound, which is perched near levels last seen in mid-June and below the significant 200-day simple moving average (SMA) of 1.3399.
Andy Burnham reiterated his commitment to existing fiscal policies, though investors seem wary. Meanwhile, The Independent reported that the government is mulling income tax cuts designed to assist younger individuals in building wealth.
From a data perspective, the UK S&P Global Services PMI dropped further in June, moving from 49.3 to 48.8, signaling a continuous decline in new orders for the fourth month in a row. Companies pointed to ongoing cost pressures and limited consumer spending as contributing factors.
Next week’s agenda includes remarks from Bank of England officials and the release of the Financial Stability Report.
Fed and BOE interest rate forecasts
In the realm of money markets, the likelihood of the Federal Reserve raising interest rates in 2026 appears slim, with only a 46% chance based on data from Prime Terminals.
On the flip side, futures indicate a 70% probability that the Bank of England will increase interest rates by the end of 2026.
GBP/USD Price Prediction: Technical Outlook
According to the daily chart, GBP/USD is trading at 1.3354, remaining beneath a crucial simple moving average (SMA) cluster around 1.3409. This level represents near-term resistance for the pair. With prices lingering under this SMA resistance and a broader trendline around 1.3520, the recent decline looks more like a corrective phase within a constrained framework. A relative strength index hovering around 53 indicates mild momentum improvement, yet it doesn’t counterbalance the existing resistance.
Looking upward, immediate resistance is found in the SMA zone around 1.3409, followed by a descending trendline at approximately 1.3520, where previous upward movements have stalled. On the downside, key support aligns with a long-term upward trendline beginning around 1.3159. A consistent break below this could lead to a deeper pullback, despite the current positive momentum being modest.
(Technical analysis in this article involved AI tools.)
(This article was revised on July 3 to clarify that money markets suggest the Fed is unlikely to raise rates in 2026, rather than indicating no rate increase is anticipated this year.)
Frequently asked questions about the British pound
Pound Sterling (GBP) is the world’s oldest currency (dating back to 886 AD) and serves as the official currency of the United Kingdom. As of 2022, it ranks fourth globally in terms of foreign exchange (FX) trade volume, making up 12% of all trades, with an average trading volume of $630 billion each day. Its primary trading pairs are GBP/USD (or “cable,” accounting for 11% of FX trades), GBP/JPY (3%, sometimes called the “dragon”), and EUR/GBP (2%). The Bank of England (BoE) issues the pound.
Monetary policy, determined by the Bank of England, plays a crucial role in influencing the pound’s value. The BoE’s decisions hinge on achieving its key goal of maintaining “price stability,” targeting around a 2% inflation rate. Adjusting interest rates is the primary tool for this. If inflation rises too high, the BoE may increase rates, making borrowing more expensive, which generally supports the pound. Conversely, if inflation falls too low, indicating slowing economic growth, the BoE may lower rates to encourage borrowing and investment.
Economic health indicators, such as GDP, manufacturing and services PMI, alongside employment metrics, can significantly sway the pound’s value. A robust economy strengthens the pound as it draws foreign investments, potentially prompting the BoE to raise interest rates, which would further bolster the currency. On the other hand, weak economic indicators might lead to a depreciation of the pound.
The trade balance is another important metric regarding the British pound. This figure reflects the difference between income from exports and expenses on imports over a specified period. If a country has a strong export market, its currency can appreciate due to increased demand from foreign buyers. Thus, a positive trade balance can strengthen the pound, while a negative balance can weaken it.
