GBP/USD Falls Near 1.35 as Dollar Strengthens

The immediate catalyst is a classic inflation trade: higher crude prices have intensified concern that energy costs will feed through into consumer prices just as traders price about a 60% chance of a U.S. rate hike next week. That backdrop has pushed global bond yields to multi-month highs and left sterling vulnerable because markets expect the Bank of England to leave rates unchanged.

BoE Governor Andrew Bailey said the market’s rate expectations curve reflected a “risk premium,” underscoring how geopolitics is now feeding directly into monetary-policy pricing. Investors are watching a key U.S. inflation release and UK growth data later this week, both of which could harden or soften bets on the Fed-BoE policy gap that is driving the currency move.

The pound’s technical picture has also weakened. RSI readings on GBP/USD are back at 43.8 after briefly running hot in July, and the pair is hovering just above the lower end of its recent Bollinger Band range, suggesting limited near-term momentum unless incoming data force a shift in rate expectations.

For investors, the move matters because a firmer dollar tends to tighten financial conditions globally, pressure commodity importers and weigh on non-U.S. assets. For sterling, the risk is that higher energy prices revive inflation without improving growth, leaving the currency exposed if UK data disappoint and the BoE stays sidelined.