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The British Pound is building on recent gains against the Dollar, climbing through 1.3550 as markets bet on aggressive Federal Reserve interest rate cuts and question the integrity of US institutions.
Dollar weakness is the overarching theme in global FX as we move through mid-week and mid-month, with losses underpinned by rising odds of more interest rate cuts at the U.S. Federal Reserve linked to data and political developments.
Traders assign a near-certainty to a September cut, with growing expectations of an outsized 50 basis point move.
This after U.S. July CPI data landed broadly in line with forecasts, reinforcing the view that the Fed can ease without reigniting inflation.
"In the end the surprise with the July CPI data was that there wasn't a surprise," said Sam Hill, Head of Market Insights at Lloyds Bank.
Fed funds futures now price 61bps of cuts in 2025 and 65bps in 2026. Stocks are firming but the Dollar is softer, helping the Pound to Dollar exchange rate extend through 1.3550, with eyes on the round target at 1.36.
At the same time, the odds of a Bank of England rate cut in November have retreated markedly following last week's policy decision that signalled the Bank is increasingly concerned with rising domestic inflation.
But in the U.S., inflation might be of secondary as political pressures could invoke interest rate cuts, regardless of underlying economic trends
Treasury Secretary Scott Bessent told Fox Business that the "Fed could have been cutting in June, July" had it had the revised labour market figures at its July meeting.
"The real thing now to think about is should we get a 50 basis-point rate cut in September," he added.
"USD traded under pressure overnight post-CPI release and on comments from Treasury Secretary Scott Bessent,” said Frances Cheung, FX and Rates Strategist at OCBC. "A September cut is more or less a done deal while there may be speculation for 50bp cut."
Fox Business reported that Trump's nominee to head the Bureau of Labor Statistics, EJ Antoni, said the agency should suspend issuing monthly jobs reports until they are "corrected".
He said the BLS should instead publish only the "more accurate, though less timely" quarterly data.
Antoni is set to take over after Trump fired Erika McEntarfer, accusing her of producing "RIGGED" jobs figures "to make the Republicans, and ME, look bad".
"Increasingly this carries echoes of autocratic countries, where the heads of statistics agencies or central banks are being replaced," said Commerzbank’s Pfister.
Above: GBP/USD rises through 1.3550.
"In these countries, critical data series are often discontinued and then reinstated a few months later after the 'problems' have supposedly been corrected, with (of course unexpectedly) significantly better values," he added.
"I'm not saying that this will necessarily happen here. But the developments of the last few days and weeks do not exactly fill me with optimism about the future – or the U.S. dollar."
Trump has also renewed criticism of Powell for being “Too Late” to cut rates, and attacked him over the cost of renovations at the Fed’s headquarters.
"I am, though, considering allowing a major lawsuit against Powell to proceed because of the horrible, and grossly incompetent, job he has done in managing the construction of the Fed Buildings," Trump said.
Michael Brown, Senior Research Strategist at Pepperstone, said: "All this reinforces my long-running bearish USD view. Structural headwinds from the erosion of economic precedent, and the independence of key agencies, will be incredibly tough to overcome."
Institutional integrity, seen by global investors as a cornerstone of US economic strength, is now being openly questioned.
This erosion, combined with falling interest rate expectations, is leaving the Dollar on the defensive and the Pound with the upper hand.