British Pound trades near three-month top as fading Fed hike bets undermine USD

The GBP/USD currency pair experiences a surge towards a three-month peak near 1.3560 on Friday, buoyed by fading expectations of a Federal Reserve (Fed) rate increase and a softer stance on the US Dollar (USD). Concurrently, the British Pound (GBP) gains support from a robust UK GDP report, projecting the strongest growth among G7 economies in the first half of 2026.

Despite a dip in US Retail Sales for July, the prevailing selling bias of the USD favors bullish traders, indicating an upside trajectory for GBP/USD. Analysts at MUFG/BTMU affirm that "the pound is continuing to perform well this year," attributing its strength to the UK economy's resilience amidst the energy price shock resulting from the US-Iran conflict.

However, geopolitical risks, particularly the US-Iran standoff and inflation concerns from volatile oil prices, temper further USD declines. Traders anticipate a pause in trading activity due to upcoming UK jobs data and consumer inflation figures. The FOMC Minutes scheduled for release on Wednesday could inject additional volatility into the GBP/USD pair during the latter half of the week.