GBP/USD: Pound Supported by Interest Rate Divergence

GBP/USD Outlook: Sterling Supported by BoE Caution and Fed Easing Bets
Sterling has been climbing steadily, supported by sticky UK inflation and a cautious Bank of England. At the same time, markets expect the U.S. Federal Reserve to begin cutting rates soon, a divergence that’s giving GBP/USD extra lift. With key data and central bank meetings ahead, the Pound’s momentum may have further to run.
 

The Bank of England cut interest rates by 25 basis points earlier this month, but only after a narrow 5-4 split vote. That tight margin sent a clear message: many policymakers are uncomfortable with cutting further while inflation, particularly in the services sector, remains stubbornly high. 

Headline CPI for June was 3.6%, far above the BoE’s 2% target. Wage growth also remains hot, even as job creation slows. This combination of softening labour data but sticky prices is exactly the sort of policy headache that keeps rate-setters cautious.
Sterling forecast: if inflation comes in hot again on August 20, the BoE will be under pressure to hold rates steady, supporting the Pound. 

 

The U.S. inflation picture is quite different. While a recent producer price report came in slightly firmer than expected, the broader trend still points to slowing inflation, especially in core components. 

Markets now anticipate the Fed will deliver its first rate cut in September, with a second likely before year-end. This shift in expectations is weighing on the dollar. As U.S. yields drift lower and traders begin to price in easier policy from the Fed, the rate differential with the UK narrows, or even turns in Sterling’s favour. 

Upcoming U.S. Events: 

GBP/USD outlook: unless there’s a major upside shock in U.S. data, Fed easing should keep downward pressure on the Dollar.
 

UK GDP rose 0.3% in Q2, beating forecasts and helping Sterling extend gains. But most of that growth came from government spending and inventory restocking, not private consumption or business investment. 

This kind of growth may not be sustainable, but it does reduce immediate pressure on the BoE to cut again. As long as the UK economy avoids a hard landing and inflation remains elevated, the central bank is likely to remain cautious. 
This policy restraint is one of the key factors underpinning current Pound strength. 

Sterling is trading within striking distance of key resistance near 1.3780–1.3800. A break above this zone could open the door to 1.3950, a level not seen since early 2022. 

Support levels to watch: 

As long as GBP/USD holds above 1.35 and global sentiment remains stable, dips are likely to be bought into the September decision window.
 

Sterling’s recent gains aren’t just a technical bounce, they reflect genuine rate divergence between the Bank of England and the Federal Reserve. With inflation still elevated in the UK, and the BoE signalling hesitation to cut further, the Pound has fundamental support. 

Meanwhile, the Fed looks poised to start easing in September. If that materialises, and UK inflation stays sticky, GBP/USD could push higher toward 1.38 and beyond. 

For now, dips look like buying opportunities, but with so many event risks on the horizon, disciplined risk management is essential.