GBP/USD Rally Tests Critical Support Amid Fed Policy Uncertainty

The GBP/USD currency pair has been on a rollercoaster ride in recent weeks, driven by the US Federal Reserve's policy decisions. On Friday, the pair surged past 1.3500 after the release of July payrolls data, which showed a contraction of 23,000 nonfarm jobs against an expected rise of 80,000.

The dollar was sold across the board as a result of the weak data, with the 10-year Treasury yield dropping to around 4.60% from 4.67% just before the release. The Fed's September hike odds collapsed to 44% from 55% a day earlier and 67% a week ago.

However, the pound's own story is less impressive than its price suggests. Over the past twelve months, GBP/USD has been flat, gaining only 0.00%, while the dollar index has swung meaningfully in both directions.

The Bank of England's Monetary Policy Committee (MPC) will meet on September 17 to decide on interest rates, with three members voting for a 25 basis point increase to 4.00% at the last meeting. The MPC's split is seen as a complete reversal of its reaction function, driven by energy prices which have remained volatile and higher than pre-conflict levels.