GBP/USD: Sterling’s make-or-break week

Key points

• GBP/USD is approaching the data around the 1.35 area, supported by resilient UK growth and expectations that the Bank of England still has another rate hike to deliver this year.
• UK jobs data on Tuesday, 18 August, will tell us whether domestic inflation pressure is genuinely fading. Regular wage growth has already slowed to 3.4%, private-sector pay growth to 2.9%, while unemployment sits at 4.9%.
• Wednesday's CPI is the bigger test. Bloomberg consensus expects headline inflation to rise to 2.9% from 2.6%, largely because of the higher household energy price cap, while services inflation is expected to ease to 3.4% from 3.6%.
• That distinction matters: an energy-driven rise in headline inflation is less GBP-positive than renewed strength in services inflation and wages.

Why GBP is at an interesting point

Sterling has benefited from a better UK growth backdrop and a Bank of England that remains worried about inflation. The BoE held Bank Rate at 3.75% in July in a 6–3 vote, while Chief Economist Huw Pill has since argued that stronger growth reinforces the case for higher rates. Markets currently price roughly another BoE hike this year.

But the labour market is telling a softer story.

Regular wage growth has slowed to 3.4%, versus 5.9% in early 2025, while private-sector regular pay growth has eased to 2.9%. Payroll employment has also been declining on a year-on-year basis and vacancies have fallen to 712,000.

That makes next week's jobs–inflation combination important for GBP/USD.

UK jobs: Tuesday, 18 August, 2pm SGT
UK CPI: Wednesday, 19 August, 2pm SGT

Scenario 1: Hot jobs + hot underlying inflation

Most bullish for GBP/USD

Look for wage growth stabilising or reaccelerating, unemployment holding or falling, followed by CPI above 2.9% and—more importantly—services inflation above the expected 3.4%.

That would suggest domestic inflation pressure is not cooling as quickly as the BoE wants and could bring additional tightening back into the rates curve.

Positioning: A sustained break above 1.35–1.36 would strengthen the bullish setup, with 1.36 the key resistance zone to clear. Above that, GBP/USD could start opening a move towards 1.37.

Risk: The dollar side still matters. Strong US data or renewed geopolitical risk could support USD even against a hawkish UK backdrop.

Scenario 2: Weak jobs + softer services inflation

Bearish GBP/USD

This is the cleaner bearish combination.

If unemployment rises further, payrolls weaken and wage growth falls below the current 3.4% pace, Tuesday would already weaken the argument for further BoE hikes.

If Wednesday then brings headline CPI around or below 2.9% with services inflation falling below 3.4%, markets could increasingly conclude that the energy-driven inflation rise is temporary while domestic price pressures are fading.

Positioning: A clear break below 1.3415 (100DMA and 200DMA converge here) would weaken the recent recovery and bring 1.33 into focus.

This would be the scenario where selling GBP/USD rallies may look cleaner than chasing the initial move lower.

Scenario 3: Weak jobs + hot headline CPI, but services cool

The tricky one — and potentially the most interesting

Headline CPI could easily rise because of the 13% increase in Ofgem's household energy price cap. But if services inflation still falls towards 3.4% and Tuesday's labour numbers are weak, that is not necessarily a hawkish signal.

It instead starts to resemble a stagflation-lite mix: higher externally driven inflation alongside a cooling domestic economy.

That could initially push UK yields and GBP higher on the CPI headline, but the move may prove difficult to sustain.

Positioning: Be cautious chasing GBP/USD higher purely because headline CPI prints 2.9–3.0%. If services inflation and wages are cooling, GBP strength towards 1.36 could be vulnerable to a fade.

Scenario 4: Strong jobs + softer CPI

Likely range rather than breakout

A resilient labour market would keep the BoE tightening story alive, but softer inflation—particularly services inflation—would remove some urgency.

GBP/USD could remain caught around 1.34–1.36, with the next move increasingly dictated by US rates and the dollar rather than UK data.

What matters most

For traders, I would rank the numbers:

1. Services CPI – strongest signal on persistent domestic inflation
2. Wage growth, particularly private-sector pay – critical for the BoE's inflation outlook
3. Employment/payrolls and unemployment – tells us whether labour-market slack is increasing
4. Headline CPI – important, but potentially distorted by the energy-price-cap increase

The GBP bull case therefore needs more than a 2.9% headline CPI print. It needs evidence that domestic inflation is sticky enough to keep the BoE tightening story alive. If wages and services inflation continue to cool, an energy-led rise in headline inflation may instead be an opportunity to fade sterling strength.