Sterling Traded Sideways as Inflation Data Supports Further Fed Hike Bets

The sterling traded in a narrow range against the dollar on Thursday during the Asian session, hovering below the 1.3600 level and near its weekly low. The price action remained subdued as markets waited for clearer guidance from the Federal Reserve on their rate path.

US Personal Consumption Expenditures inflation for July came in at 3.7% year-on-year, unchanged from the previous month but slightly above estimates. This supported expectations of at least one further Fed hike before the end of the year and helped the dollar maintain its recent gains.

Countervailing drivers limited further dollar strength, however. The US Treasury's buyback strategy weighed on yields, while optimism around a potential US-Iran understanding and steps towards reopening the Strait of Hormuz tempered safe-haven demand.

The conditions remained fluid after a warning that full reopening depends on US commitments under an interim June deal, keeping a geopolitical risk premium that supported crude and the greenback. Technically, GBP/USD stayed capped below the 1.3660-1.3665 supply zone, with potential dip-interest referenced around the mid-1.3400s and low-1.3300s.

As markets closely analyze sticky inflation data, such as the PCE price index holding at 3.7%, the immediate direction hinges on upcoming central bank signals. Historically, similar tight consolidation patterns ahead of major economic symposiums have preceded average currency breakouts of 150 to 200 pips.