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The pound traded steadily on Monday, resisting a modest rebound in the U.S. dollar as investors awaited key inflation data delayed by the government shutdown. The core tension for FX markets lies in whether the upcoming U.S. consumer-price report will confirm the recent dovish repricing of Federal Reserve policy or force a correction that strengthens the greenback against major peers.
Policy Uncertainty Weighs on Both Sides of the Atlantic
The dollar recovered slightly after its steepest weekly decline since August, with the DXY index up 0.1% to 98.50. The move came as traders tempered expectations for aggressive Fed cuts later this year, even as concerns persisted over rising loan losses at smaller U.S. lenders. Two-year Treasury yields hovered near 3.97%, while the 10-year stayed around 4.23%, leaving the curve broadly unchanged and signaling that markets are in a holding pattern until Friday’s data release.
Sterling, meanwhile, was little changed near $1.2840, maintaining last week’s gains after the Bank of England’s latest minutes suggested policymakers remain reluctant to ease prematurely. Traders currently price in roughly 40 basis points of BoE cuts by March, compared with more than 75 basis points for the Fed—a divergence that continues to support GBP/USD in the short term.
Market Sentiment Balances Rate Differentials and Growth Risks
The delay in U.S. inflation data has injected fresh uncertainty into global markets. With only a limited number of government employees recalled to release the figures, investors are confronting both administrative dysfunction and a lack of macro visibility. If inflation shows continued moderation, real yields could decline, putting renewed downward pressure on the dollar and allowing sterling to retest recent highs near $1.29.
However, the broader risk environment remains fragile. The S&P 500 was marginally higher in early trading, led by a modest rebound in financials, while gold steadied around $4,300 per ounce. Brent crude hovered near $84 per barrel as traders balanced sluggish Chinese demand against geopolitical supply risks. These cross-asset signals reflect a cautious appetite for risk, which tends to limit sterling’s upside when volatility rises.
Base and Alternative Cases for GBP/USD
The base case remains for GBP/USD to trade in a narrow range this week as markets await both the delayed U.S. CPI report and upcoming U.K. PMI data. Softer U.S. inflation, combined with steady U.K. services momentum, would favor a gradual move toward $1.30 over the coming weeks. Conversely, a stronger-than-expected U.S. reading would likely lift Treasury yields, strengthen the dollar broadly, and push the pair back toward $1.27 in short order.
Investor Takeaway
For portfolio managers, the opportunity lies in exploiting rate-differential volatility rather than chasing directional momentum. A short-dated options strategy or a pairs trade between GBP/USD and EUR/USD could capture near-term repricing around Friday’s data. The key risk is that U.S. inflation surprises on the upside, restoring dollar dominance and erasing recent sterling resilience. Until clarity returns, maintaining balanced FX exposure remains the most prudent stance.