GBP/USD Hovers Near 1.35 as Fed Stays Hawkish
The British pound hovered around $1.35 as traders stayed reluctant to chase sterling higher, with a mixed US data run doing little to shake expectations that the Federal Reserve will keep policy tight for longer.
That leaves the dollar with a persistent yield advantage and keeps pressure on sterling, even though the Bank of England remains comparatively restrictive. For investors, the bigger issue is that the foreign-exchange market is still being driven less by UK fundamentals than by the relative stance of the two central banks, with US rates seen staying higher for longer and Treasury yields anchored near levels that support the greenback.
The latest price action shows how little room the pound has had to break out. GBP/USD closed at 1.35 on Sept. 1, barely changed from the prior session and still below the 1.36 area it touched late last month. On a technical basis, the pair is sitting just above both its 50-day and 200-day moving averages at 1.34, while RSI has eased to 52.5 from a more overbought 67.4 on Aug. 28, suggesting momentum has cooled rather than turned decisively bearish.
The dollar remains the cleaner macro trade. The US dollar index was near 99.64 on Sept. 1, holding above its 50-day average of 100.4 only marginally weaker in recent sessions, while 10-year Treasury yields stood at 4.73% and two-year yields at 4.34% on Aug. 28. Those levels matter because they keep real-money flows pointed toward US assets and make it harder for the pound to sustain rallies without a clearer shift in Federal Reserve messaging.
That shift has not arrived. Adalytica’s Federal Reserve Forward Guidance Sentiment gauge was at 4, or “Extreme Fear,” while its Hawkish vs Dovish Fed Policy Sentiment reading sat at 33, in neutral territory but still consistent with a market that sees more hawkish than dovish risk. In plain terms, traders are not pricing in an imminent pivot to easier US policy, and that is the key reason sterling has stagnated despite a Bank of England that is also not in easing mode.
The contrast leaves the pound trapped between two central banks, but the Fed matters more for now because US data and yields dominate global FX pricing. Mixed economic prints have not been soft enough to force investors to unwind hawkish bets, and the resulting resilience in the dollar has outweighed the support sterling might otherwise get from a still-restrictive BoE.
For investors, the implication is that sterling upside is likely to remain capped unless US inflation or labor data weaken enough to drag Treasury yields lower. Until then, GBP/USD looks more like a range trade than a trend story, with rallies toward the upper end of its recent band vulnerable to renewed dollar buying.
| Entity | Gains | Losses |
|---|---|---|
| US dollar | ▲Higher yields support demand | ▼Rate-cut bets stay delayed |
| British pound | ▲BoE support limits downside | ▼Fed hawkishness caps upside |
| US Treasury bonds | ▲Benefit if growth slows later | ▼Yield-sensitive holders face volatility |
| FX volatility traders | ▲Range-bound swings create trades | ▼Breakout seekers are frustrated |