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The dollar’s pause faces Wednesday’s US inflation test, with the pound’s recoveries likely to stay shallow.
The Pound to Dollar exchange rate remains in a consolidation phase that Wednesday’s US inflation figures will either extend or break.
The pair is at 1.3240 at the time of writing, with the RSI – seen in the bottom panel of the chart – recovering from oversold territory, which relieves the immediate pressure on the pair.
Above: GBP/USD at daily intervals with the 21-day and 100-day moving averages.
Spot sits below a falling 21-day moving average at 1.3288 and below the 100-day average at 1.3396.
Our preferred outcome is for the weakness to resume once the consolidation ends, with the timing of such an outcome possibly dependent on how this week’s inflation numbers resolve. 1.3150 is the target on a resumption of downside, close to the 2026 trough at 1.3140.
US Inflation the Key Driver
The consensus expects headline CPI inflation to rise to 3.6% year-on-year in September from 3.4%, with a 0.6% month-on-month increase.
For flavour, Barclays forecasts 3.7%, Investec 3.4%, which hints at the dispersion of forecasts and the potential for two-way risks around the consensus number.
A print in line with or below 3.6% supports the view that the Federal Reserve can wait until December before raising rates again and would likely weigh on the dollar.
“Inflationary pressures appear to be mostly localised in the energy component, providing policy space for the Fed to defer the next hike until December,” says a weekly preview note from Lloyds Bank.
Goldman Sachs sees a firmer number and argues it would lock in the dollar’s gains: “our economists expect another firm US inflation print next week, which would likely keep Fed pricing more stable.”
Barclays expects dollar strength to return over the medium term but sees positioning as a near-term headwind, with the market having swung from very short to quite long dollars during this rally.
“Bond market moves have been quite sharp; as a result, global financial conditions are now tightening. This could prompt some reassuring language from the Fed going into the October FOMC, particularly if the CPI print is tame,” says Barclays.
A print above the 3.6% consensus supports the dollar and points to a test of 1.3150, while a softer number extends the consolidation.
US retail sales data later in the week adds to the picture, with Lloyds forecasting a 0.4% headline increase.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Bank of England Pricing a Vulnerability for GBP
On the sterling side, CIBC Capital Markets says markets are “too deterministic” in pricing a November Bank of England hike.
“Given current market pricing any signs of policy patience, particularly from the deputy Governor, would risk mitigating current November pricing, amplifying GBP challenges given Sterling’s high beta status and risk vulnerability,” says CIBC.
Goldman Sachs forecasts GBP/USD at 1.28 in 12 months, hinting at sizeable downside risks for the pair.
Recoveries are likely to be shallow while dollar dominance remains the overarching theme in FX, with last week’s high at 1.3380 the cap.
Keep an eye on this week’s British GDP release. Consensus expects Thursday’s August GDP to fall 0.1% m/m after July’s 0.4% gain, with services output seen down 0.1%, and house forecasts range from Deutsche Bank’s flat print to Pantheon Macroeconomics’ 0.3% fall on a correction in information and communication and administrative services.
The key talking points are the unwinding of July’s narrowly based, World Cup-flattered strength as the energy shock bites, and the ONS Blue Book revisions arriving alongside the release, which reopen the whole 2026 monthly series and could pull July lower. Even so, the three-month rate is expected at 0.5%, and Lloyds says Q3 growth of around 0.5% q/q “would be well above the Bank of England’s forecast”.
The Bank of England has consistently underplayed the economy’s strength this year, and that’s allowed it to avoid raising interest rates and dealing with above-target inflation.
Another strong print makes that untenable, opening the door to a November hike and a firmer sterling profile into year-end.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
