Pound Surges Against Dollar as Fed Rate Cut Frenzy Ignores Sticky Inflation

The British pound is staging a robust comeback against the US dollar, climbing 0.56% to trade at 1.3572 after dipping to a low of 1.3487. This surge comes amid widespread weakness in the greenback, fueled by mounting expectations that the Federal Reserve will kick off a fresh round of monetary easing as early as September.

Despite hotter-than-expected core inflation figures, investors are laser-focused on potential rate reductions, brushing aside signs of persistent price pressures in the US economy.
July’s US Consumer Price Index (CPI) data painted a mixed picture: headline inflation held steady at 2.7% year-over-year, matching June’s level, while core CPI—which strips out volatile food and energy costs—climbed to 3.1%, breaching the 3% mark. Yet, markets largely dismissed these numbers, with futures pricing in a staggering 97.85% probability of a Fed rate cut at the next meeting. This optimism persists even as inflation lingers above the Fed’s 2% target, highlighting traders’ eagerness for looser policy amid broader economic slowdown signals.

On the UK front, recent employment data offered some relief to Bank of England officials grappling with elevated inflation and a decelerating economy. While the jobs report wasn’t disastrous, it underscored a cooling labor market. Attention now turns to Thursday’s GDP release, where annual growth is anticipated to slip from 1.3% to 1%, with quarterly expansion grinding down from 0.7% to just 0.1%. These figures could further shape the BoE’s cautious stance on rates, contrasting with the aggressive easing bets across the Atlantic.

Looking ahead, the US economic calendar heats up on Thursday with the Producer Price Index (PPI) and Initial Jobless Claims. Annual PPI is expected to edge up from 2.3% to 2.5%, while core PPI may rise from 2.6% to 2.9%—data that could either reinforce or temper the current rate-cut enthusiasm. Adding to the mix, US Treasury Secretary Scott Bessent has publicly advocated for bold action, calling for a 50 basis-point cut in September followed by additional reductions totaling 150 to 175 basis points. This echoes ongoing pressure from Trump administration figures on Fed Chair Jerome Powell to slash rates, despite inflation’s stubborn hold above target levels.

From a technical perspective, the GBP/USD pair appears poised for further gains. Having breached the 200-day Simple Moving Average at 1.3498, the psychological 1.3500 level, and the upper trendline of a falling wedge pattern, buyers are firmly in the driver’s seat. The Relative Strength Index (RSI) is on an upward trajectory in bullish territory, signaling strengthening momentum and reinforcing the pair’s positive bias in the near term.