Investors reduce USD positions after weak US data fuels expectations of a Federal Reserve pause in September.
The British Pound surged to a three-month high of 1.3570 against the US Dollar, extending gains for a second day. The move reflects broad USD weakness as markets price in a dovish shift by the Federal Reserve, with a September rate hike now seen as unlikely.
Recent US economic data reinforced expectations of a Fed hold. July’s Retail Sales fell 0.6%, missing forecasts of a 0.1% gain, while inflation and jobs data also softened. Futures markets now assign a 30% chance of a September hike, down from over 50% a week ago.
UK GDP growth in Q2 was moderate, but July’s unexpected drop in Industrial Production adds uncertainty to the Bank of England’s policy outlook. Analysts note the GBP’s break above 1.3540 signals further upside potential.