The Pound Sterling remains steady around 1.3450 against the US Dollar, buoyed by anticipation of the Federal Reserve cutting interest rates. According to the CME FedWatch tool, there is almost a complete expectation of a 25-basis point cut by the Fed in September, potentially lowering borrowing rates to 4.00%-4.25%. US President Donald Trump’s nomination of Stephen Miran for Fed Governor could boost support for further rate cuts. Meanwhile, Bloomberg’s report suggests Fed Governor Christopher Waller is a potential successor to Jerome Powell, after meeting with Trump’s team.

The Pound Sterling Holds Steady

The Pound Sterling continues to hold gains from Thursday, following the Bank of England’s decision to cut rates by 25 basis points to 4% after a tight vote. The market notes a 17 basis points cut expectation for the year, with the decision taken by a narrow 5-4 majority. BoE retained its “gradual and careful” approach to easing monetary policy, aiming to bring inflation to the 2% target. BoE Governor Andrew Bailey highlighted inflation risks and a subdued growth outlook, with forward CPI projections raised to 2.7%. Upcoming economic events include UK labour market data and US CPI data, with the latter expected to show US inflation rising to 2.8%. The Pound Sterling’s technical analysis shows bullish momentum with an upward movement above the 20-day EMA, and key support and resistance levels noted. As of today, August 8th, 2025, we are seeing the Pound hold its ground against the Dollar, currently trading near 1.3450. This stability comes right after the Bank of England cut its rate to 4%, while the market is now fully pricing in a similar cut from the US Federal Reserve next month. The immediate focus is on which central bank will be more aggressive in its easing cycle.

Fed Rate Cut Expectations

The expectation for a Fed rate cut in September is nearly universal, a move that would weaken the US Dollar. This view was strengthened after last week’s Non-Farm Payrolls report for July 2025 showed job growth slowing to just 150,000, well below expectations and signaling a cooling US economy. The potential nomination of more dovish members to the Fed’s board only adds to this outlook. In contrast, the Bank of England’s recent cut was a very close call, decided by a narrow 5-4 vote. This caution reminds us of the difficult battle against high inflation back in 2023, making the bank hesitant to lower rates too quickly, especially with its own inflation forecast for the year rising to 2.7%. This division suggests future UK rate cuts are less certain than those in the US. The biggest test for this view will be next week’s US Consumer Price Index (CPI) data, which is expected to show inflation ticking up to 2.8%. Looking back at market reactions over the past year, a CPI surprise of just 0.2% above the forecast has often caused the dollar index to jump significantly on the day of the release. A hot inflation number could quickly reverse the expectation of a September Fed cut. Given this setup, we think traders could consider using options to manage risk while positioning for a higher GBP/USD. For instance, buying call options on the currency pair would allow one to profit from a rise in the pound’s value, which would happen if the Fed signals a definite cut. This strategy also carries a defined, limited risk if the US inflation data comes in surprisingly high and strengthens the dollar instead. From a technical standpoint, the current price action above the 20-day Exponential Moving Average supports a bullish outlook for the pair. We will be watching to see if it can break the recent resistance around 1.3520, which could signal further upward momentum. However, a failure to break this level, especially following the US CPI release, might indicate a short-term top is in place.

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