Pound Strengthens as Soft US Data Cools Rate Hike Bets

The British pound has held above 1.3550 against the US dollar as softer-than-expected US economic data tempered expectations for further Federal Reserve interest rate hikes.

This shift in sentiment weighed on the US dollar, providing a tailwind for the pound. The GBP/USD pair has climbed roughly 1.5% from its early-August low, with technical resistance emerging near the 1.3600 level.

The latest US data, including softer consumer confidence figures and a cooling housing market, have prompted traders to scale back bets on additional Fed tightening. According to the CME FedWatch tool, market-implied probabilities of a rate hike at the next Fed meeting have declined to around 30%, down from 45% a week earlier.

The Bank of England is also navigating a delicate balancing act, with UK inflation remaining above the central bank's 2% target. Recent economic data suggests the economy is slowing, which could influence the pace of future rate decisions. Market participants are currently pricing in a roughly 40% chance of a rate cut by the BoE in November, according to swap markets.