GBP/USD Rebounds as Fed Rate Cut Bets Surge Despite Sticky Core CPI
The GBP/USD pair saw a notable rebound on Wednesday, rallying above 1.2760, as market sentiment shifted towards more aggressive Federal Reserve rate cut expectations — even with the latest U.S. core Consumer Price Index (CPI) data showing persistent inflation pressures.
Earlier in the session, the greenback came under pressure after the headline CPI for July printed at 3.2% year-over-year, in line with expectations, while the core CPI, which excludes volatile food and energy prices, came in at 3.4%, slightly above forecasts. This stickiness in underlying inflation would typically dampen hopes for rate cuts, yet traders appeared more focused on slowing economic momentum and recent dovish rhetoric from Fed officials.
In the currency markets, the U.S. Dollar Index (DXY) slipped below 103.50, while the pound sterling gained momentum, supported not only by dollar weakness but also by better-than-expected UK labor market data earlier this week. UK wage growth, excluding bonuses, rose at an annual pace of 5.1%, beating expectations and reinforcing the view that the Bank of England (BoE) might keep policy relatively tight for longer.
Analysts suggest that the GBP/USD rally could be short-lived if U.S. data later this week — particularly retail sales and consumer sentiment — surprise to the upside. Still, interest rate futures now fully price in a 25 basis point Fed cut for the September meeting, with growing bets for a follow-up cut in November.
"Markets are in a tricky place right now," said one London-based FX strategist. "On the one hand, inflation isn’t coming down as fast as the Fed would like, but on the other hand, growth concerns are piling up, and that’s pushing rate cut expectations higher."
Technically, the GBP/USD pair faces immediate resistance near 1.2785, with a break above potentially opening the door toward the 1.2820 zone. On the downside, support is seen around 1.2725, followed by 1.2680.
In the broader forex space, other major currency pairs also reacted to the shifting Fed outlook. The EUR/USD pushed above 1.0980, while USD/JPY slid under 143.50 as traders sought safety in the Japanese yen. Meanwhile, commodity-linked currencies like the AUD/USD and NZD/USD extended gains, aided by a rebound in global equity markets.
For now, the GBP/USD story is a tug-of-war between U.S. monetary policy expectations and lingering inflation risks, and traders are watching closely for the next data point that could tip the balance. With volatility elevated, the pair remains firmly in the spotlight heading into the end of the week.