Pound-Dollar could stay supported if BoE hike bets continue to build, while softer US labour data may limit demand for the Dollar.
The Pound US Dollar (GBP/USD) exchange rate attracted support on Monday as UK diesel hit an all-time high, boosting Bank of England (BoE) interest rate hike bets. However, gains were limited in scope.
At the time of writing, GBP/USD was trading at $1.3250, having briefly touched a five-day high.
Pound to Dollar (GBP/USD): 1.325578 (+0.07%)
Dollar to Yen (USD/JPY): 157.44139 (+0.10%)
DAILY RECAP:
The Pound (GBP) climbed on Monday as UK diesel prices reached a fresh record high, prompting markets to price in a greater chance of tighter monetary policy from the Bank of England in the months ahead.
Average diesel prices at UK forecourts rose to 199.18p per litre, surpassing the previous record set in June 2022 after Russia’s full scale invasion of Ukraine.
Elevated fuel costs can have a broader impact on inflation, particularly as businesses that depend on diesel-powered vehicles for transport may raise their prices to absorb higher operating costs.
With the prospect of stronger inflationary pressures in view, markets increasingly anticipated a more hawkish stance from the BoE.
Meanwhile, the US Dollar (USD) attracted modest support on Monday as the latest reports about the Middle East crisis prompted some caution among investors.
Over the weekend, the US rejected a peace proposal from Iran, which would have reopened the Strait of Hormuz in seven days. After rejecting the deal, President Donald Trump said he expected negotiations to resume soon. However, Tehran pushed back on these claims.
US-China trade news offer investors some hope, however, meaning the market mood wasn’t decisively risk averse. Following in-person talks between President Trump and Chinese President Xi Jinping last week, the two sides released lists detailing around $30bn each in tariff cuts that could boost Sino-American trade.
Near-Term GBP/USD Forecast: Mixed US Data to Mute the Dollar?
Looking forward, Tuesday brings the latest US Job Openings and Labor Turnover Survey (JOLTS). A slight decline in new vacancies could mute USD.
Meanwhile, a forecast uptick in US consumer confidence in September could support the ‘Greenback’. However, if intensifying Middle East tensions and expectations for higher interest rates unexpectedly dented consumer morale last month, USD could stumble.
For Sterling, the UK economic calendar is light on Tuesday, leaving domestic developments in focus. Headlines from the Labour Party Conference could therefore influence the Pound.
Bank of England policymaker Alan Taylor is also scheduled to speak, with his comments potentially shaping expectations for GBP. Any dovish signals could put further pressure on the currency.
Our currency coverage draws on live market data, official economic releases and published bank research.
