Nobody was ever paying the British Pound for its hawks

On Monday, the GBP/USD exchange rate hovered near 1.3550, a slight increase from the previous session after three consecutive declines pushed the pair below a cent from its six-month high. The pair remained well clear of key moving averages, with a daily Stochastic Relative Strength Index (Stoch RSI) indicating a shift from above 90 to near 82.

The absence of scheduled events from both the United Kingdom and the United States on Monday allowed the pair to trade within a narrow range of thirty-five pips. This movement, however, did not signify a genuine reversal, but rather a gap in the fixture list for the currency pair.

In the same timeframe, American military forces struck Iranian rocket launchers on Larak Island, causing Tehran to retaliate against US bases in Jordan. Crude Oil also experienced a 2% increase, which, along with higher Treasury yields, contributed to the market's activity. For the United Kingdom, this situation posed a secondary concern, as the country's July Consumer Price Index (CPI) inflation stood at 2.9%.

The Bank of England (BoE) maintained its Bank Rate at 3.75% during a vote on July 30, with six members favoring a rate of 3.75% and three preferring 4.00%. The hawkish bloc, however, had grown by one member. The central projection for inflation peaked around 3.2% in the fourth quarter, marking a hawkish outlook with a minority attached to it.

This forecast came as part of the last full round of projections before the November meeting, leaving the September meeting with no new projections for the minority to rely on. The Bank of England did not adjust its stance on inflation during this meeting.

The rally in the GBP/USD exchange rate was not driven by any new developments from the United Kingdom, but rather by the absence of a story from the US Dollar. The dollar's own story gained prominence, leading to a reversal in the GBP/USD pair. This observation highlights the dominance of the Dollar in this currency pair, with the UK side merely acting as a passenger.

The three dissenting votes from the BoE were real, and the inflation issue was significant, but neither had been the driving force behind the pair's movements since the spring. The Federal Reserve chair's Jackson Hole keynote on Friday hinted at a potential increase in interest rates, with probabilities indicating a 65% chance for a September decision, 92% for October, and a near-even split between one increase and two increases by December.

The Bank of England's upcoming Monetary Policy Report hearings, along with Governor's speech on August 8, provided a brief opportunity for the Pound Sterling to make a move. However, the market quickly turned its attention back to the American docket, starting with the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) on Tuesday.

Several other economic indicators, including private payrolls, jobless claims, ISM Services, and Friday's Nonfarm Payrolls, followed suit. These factors, combined with the absence of scheduled UK events and the bearish bias in the market, all pointed towards a lower high and a potential break below the 1.3600 resistance level.