GBP Gains Ground Against USD as Fed Hike Odds Drop to 31%

The British Pound (GBP) gained strength against the US Dollar (USD) on Monday, trading above 1.3550 in early European hours. The USD weakened after softer-than-expected U.S. data reduced expectations for a near-term Federal Reserve rate increase to 31%. Bank of England Chief Economist Huw Pill's comments, reaffirming a call for higher interest rates, continued to support the Pound.

U.S. Retail Sales declined in July, marking the first time in nine months. This, combined with subdued inflation and job losses, reinforced the view that policymakers may keep rates unchanged at the next policy decision. Market-implied probabilities reflected this shift in sentiment, with investors pricing in a 31% chance of a rate increase at the forthcoming Fed meeting.

Strategists at Scotiabank noted that central bank communication has been a major support factor for Sterling. BoE commentary has 'remained hawkish,' pointing to remarks from Chief Economist Huw Pill. This ongoing tightening bias has helped maintain a constructive tone around GBP despite a quieter data backdrop.