The British Pound (GBP) continued its winning streak against the US Dollar (USD) for the ninth consecutive day, with GBP/USD trading around 1.3390 during Asian hours on Tuesday [1]. This sustained rally is attributed to a shift in market sentiment, as participants scaled back expectations for Federal Reserve (Fed) rate hikes in the upcoming months. The change in outlook followed a cooling US employment report, which showed fewer jobs added in April, May, and June than Wall Street had anticipated [1].
Additionally, a recent drop in crude oil prices—driven by an OPEC+ production boost and a US-Iran peace deal—has helped alleviate broader inflationary pressures, further reducing the urgency for aggressive Fed policy tightening [1]. Despite these dovish influences, the US Dollar found some baseline support from hawkish remarks by Fed Governor Christopher Waller and resilient domestic economic data. Waller emphasized the importance of flexible forward guidance and reaffirmed the Fed's commitment to its 2% inflation target, scoring a 7.1/10 on the FXS Speechtracker, above the baseline of 6.4/10 [1]. The FXS Fed Sentiment Index also rose by 1.83 points to 125.72, indicating a move further into hawkish territory relative to the neutral 100 benchmark [1].
US economic data showed that the ISM Services Purchasing Managers’ Index (PMI) for June remained in expansionary territory at 54.0, matching consensus estimates. The Prices Index within the report fell from 71.3 to 67.7, while the Employment Index improved from 47.9 to 51.2, moving out of contractionary territory [1].
On the UK side, the British Pound could face its own headwinds as markets have lowered expectations for Bank of England (BoE) tightening. Investors are now pricing in just a 70% chance of a single rate hike this year, a notable decline from previous expectations of two increases [1].
CONCLUSION
The British Pound's rally is being driven by reduced Fed rate hike expectations and softer US inflation pressures, though hawkish Fed commentary and solid US data provide some support for the Dollar. Meanwhile, the Pound may face challenges if BoE tightening expectations continue to fade. Overall, the market remains sensitive to evolving central bank guidance and economic data.