GBP Surges Against USD as Traders Bet Against Hawkish Fed

The British Pound has strengthened against the US Dollar in the European trading session on Friday, reaching near 1.3533 as traders price out hawkish Fed bets.

According to the CME FedWatch tool, the odds of the Federal Reserve holding policy rates steady in September have increased to almost 65%, a major repricing from the 75% odds of two Fed hikes by the September meeting recorded a month earlier.

This shift in expectations comes after soft US Consumer Price Index (CPI) data for July, which allowed traders to pare back hawkish Fed interest rate expectations. Analysts at Commerzbank noted that 'July US CPI came in broadly in line with expectations,' reinforcing the view that price pressures are not re-accelerating.

The British Pound is expected to trade highly volatile next week as the UK labor market data for three months ending June and the CPI data for July are scheduled to be released on Tuesday and Wednesday, respectively.