British Pound pulls back from session highs as BoE Bailey tames rate hike hopes

The British Pound strengthened to above 1.3500 against the US Dollar on Friday, as the Bank of England (BoE) maintained a hawkish stance. This support came after BoE Chief Economist Huw Pill suggested that the central bank should raise its key interest rate to curb the risk of inflation staying above its target for an extended period.

Despite uncertainty surrounding the Middle East conflict, six members voted for a rate hike in July, while only five backed maintaining the current level. Traders priced the probability of a 25-basis-point (bps) rate increase at the upcoming policy meeting in September at slightly over 15%, but this surged to over 70% for the subsequent meeting in November.

Attention will now turn to the US Nonfarm Payrolls (NFP) report later in the day, which could influence expectations for the Federal Reserve's next policy move. The NFP data is anticipated to show 56,000 jobs added in August, with the unemployment rate remaining steady at 4.1%. Strategists at UOB Group remain cautious about the Pound Sterling's short-term outlook, with a target range of 1.3480 and are wary of the downside risk.

On the upside, a breach of 1.3545 would indicate that the downward pressure from the previous Friday has eased. However, a close above the 100-day simple moving average (SMA) around 1.3443 and the Bollinger band structure above 1.3555 could pave the way for a potential rally.