GBP Holds Steady as USD Pauses for a Breather Amid Hawkish Outlook

The British Pound (GBP) is holding steady against the US Dollar (USD), trading above its lowest level since June 29 at around 1.3200.

This comes as the USD pauses for a breather near a two-month high, after a strong rally fueled by hawkish Federal Reserve and oil-driven inflation fears that have pushed US bond yields to multi-year highs.

The divergent Fed-BoE outlooks suggest caution before placing bullish bets on the GBP/USD pair. The Bank of England's (BoE) more cautious holding or gradual easing bias amid stagflation fears indicates a path of least resistance for the currency pair is to the downside.

According to the CME Group's FedWatch Tool, traders are pricing in over a 65% chance that the US central bank will raise borrowing costs again in October. This, combined with oil-driven inflation fears and elevated US bond yields, validates the positive outlook for the buck, suggesting fresh sellers at higher levels may attract the GBP/USD pair.

Traders are now looking forward to BoE Governor Andrew Bailey's scheduled speech for more cues about the future policy path. Later in the North American session, traders will take cues from US macro data, Durable Goods Orders and the revised University of Michigan Consumer Sentiment Index.