Diminished expectations for Federal Reserve tightening lift the pair, with September rate hike odds falling to 32.7%.
The GBP/USD pair climbed to 1.3610 in early European trading, extending gains as the US Dollar weakened. Fading Federal Reserve rate hike expectations and Treasury bond buybacks drove the move, with markets pricing a 32.7% chance of a September hike, down from 47% a month ago.
Recent US jobs and inflation data softened, reducing bets on tighter monetary policy. The Fed’s July minutes showed policymakers still see rate hikes as likely if inflation persists, though the target range remains at 3.5%-3.75%. Meanwhile, UK inflation data and cooler labor market figures eased pressure on the Bank of England, with markets pricing one more rate hike this year.
Analysts noted the UK’s latest labor report signaled easing inflation risks, potentially limiting further BoE tightening. The pair’s rally reflects shifting monetary policy expectations on both sides of the Atlantic.