British Pound Sterling's three-month high was made in America

The British Pound Sterling reached a three-month high against the US Dollar on Tuesday. Trading just below 1.3550, it marked its strongest level since early May. This gain amounted to nearly 300 pips from the base of 1.3300, constructed in the first week of August.

The currency's rise has been driven by futures pricing a likely September Federal Reserve rate hike, shifting from over 82% after the July 29 decision to around 31%. This shift was fueled by three consecutive releases from America: payrolls contracting by 23K, July Consumer Price Index (CPI) at 3.4% year-over-year with core inflation at 2.5%, and retail sales dropping by 0.6%.

Monday's peak of 1.3600 was not enough to sustain the Pound's strong performance. The currency only showed a minimal response to the UK's labor market release, which indicated a 35-pip range and slight loss. Regular pay growth accelerated to 3.5%, slightly above the Monetary Policy Committee's (MPC) expectations, while total pay including bonuses slowed to 4.1%, still higher than the 3.3% forecasted for the fourth quarter in February.

Despite the strong performance in American markets, the Pound's own rate story remained relatively unchanged, pointing to the influence of external factors such as energy shocks rather than domestic data. The Pound's value is primarily influenced by the monetary policy decisions made by the Bank of England, aiming for a steady inflation rate of around 2%.