Market Analysis

The GBP/USD pair is trading lower at around 1.3125 during the early European session on Tuesday. The decline in this major currency pair is driven by a stronger US Dollar (USD) as investors await key US economic data. Bank of England (BoE) Deputy Governor Sarah Breeden is scheduled to speak later today, followed by the release of the US ISM Manufacturing Purchasing Managers Index (PMI).

Market sentiment is increasingly leaning towards the US Federal Reserve (Fed) easing its monetary policy in its September meeting, with the CME FedWatch tool indicating a nearly 69% probability of a 25 basis points (bps) rate cut. Fed Chair Jerome Powell suggested at last month's Jackson Hole symposium that it may be time for policy adjustments.

A potential rate cut by the Fed could exert downward pressure on the Greenback in the short term. Rabobank analysts predict four rate cuts by the Fed between September and January, with rates expected to remain unchanged for the rest of 2025. The US Nonfarm Payrolls (NFP) report on Friday is anticipated to be particularly significant, potentially providing insights into the scale and timing of future Fed rate cuts. The US economy is forecasted to add 163,000 jobs in August, with the Unemployment Rate expected to decrease to 4.2%.

Conversely, the market does not foresee a rate cut by the BoE in September, but there is an 87.2% chance of a 25 bps cut in November. With no major economic data releases from the UK this week, the movement of the GBP/USD will largely be influenced by the USD's performance.

Paraphrasing text from "FX Street" all rights reserved by the original author.