GBP Reaches Near Three-Month Highs vs USD Amid Weakened Fed Hike Bets

The British Pound (GBP) has reached near three-month highs against the US Dollar (USD), driven by dip-buyers and a prevailing USD selling bias. The GBP/USD pair is trading above mid-1.3500s, with analysts attributing its strength to upbeat UK GDP data, showing a 0.3% expansion in June.

Last week's release of US inflation data revealed moderating price pressures, while data on Friday showed a 0.6% decline in US Retail Sales for July - the biggest monthly fall since May last year. This tempered expectations for an immediate interest rate hike by the Federal Reserve (Fed), putting USD bulls on the defensive.

Analysts at MUFG/BTMU highlight that the pound has been 'the best performing major currency so far in August' and attribute its resilience to evidence of a more robust UK economy, despite the negative energy price shock triggered by the US-Iran conflict. The geopolitical risk premium remains in play, however, as does inflation risk stemming from volatile oil prices.

Looking ahead, traders may opt to hold back on further moves until key data releases later this week, including UK jobs data and consumer inflation figures on Tuesday and Wednesday respectively, with the Federal Reserve's FOMC Minutes also set for release on Wednesday.