GBP/USD Rises as Traders Await Fed Decision Despite Strong U.S. Data

The Pound Sterling advanced against the U.S. Dollar on Tuesday, climbing more than 0.30% as the Greenback slipped to a ten-week low on the U.S. Dollar Index (DXY). The GBP/USD pair traded at 1.3646, up from a daily low of 1.3592, as investors shifted focus to the Federal Reserve’s upcoming policy decision. The two-day Federal Open Market Committee (FOMC) meeting, which began on Tuesday, is widely expected to result in a 25-basis-point rate cut, though a small minority of traders continue to bet on a deeper 50-basis-point move.

Sterling’s rally pushed it to an eleven-week high, with investors shrugging off stronger-than-expected U.S. economic data. The Commerce Department reported that U.S. Retail Sales rose 0.6% month-on-month in August, beating forecasts of 0.2% and up from July’s 0.5%. The control group, which feeds directly into GDP calculations, expanded 0.7%, also surpassing expectations. Industrial production figures showed a 0.1% monthly gain, reversing July’s 0.1% decline, with manufacturing activity slightly higher even as utilities fell.

Despite the upbeat data, expectations of monetary easing remain intact as signs of labor market weakness persist. Traders anticipate that the Fed’s updated economic projections and dot plot will provide further clarity on the path of interest rates through the end of the year.

Across the Atlantic, UK labor market figures revealed payrolls fell for a seventh consecutive month, pointing to a cooling jobs market. Nevertheless, analysts expect the Bank of England to hold interest rates steady at its policy meeting on Thursday, as it continues to balance slowing labor momentum against the need to maintain monetary stability.

With markets pricing in a near-certain Fed cut and awaiting the updated outlook from policymakers, GBP/USD remains well supported, reflecting both Sterling strength and Dollar softness ahead of Wednesday’s pivotal decision.