Ella 
On the first trading day of this week, GBP/USD attracted some bulls and maintained a modest intraday gain, with the Asian market below 1.2750. However, spot prices are still confined to a similar range over the past three weeks, and the mixed fundamentals warrant caution for aggressive bullish traders.
Sterling continued to find support from rising bets on further rate hikes from the Bank of England, coupled with a weaker dollar price, providing some support for GBP/USD. In fact, current market pricing is pricing in a more than 80% chance of a 25bps rate hike by the BoE in September. British wages rose at a record pace in the second quarter, fueling concerns about longer-term inflation, raising bets. This, together with an upbeat UK GDP report and slightly higher-than-expected UK CPI data, supported the prospect of further tightening by the BoE.
On the other hand, the Federal Reserve (Fed) is also expected to stick to its hawkish stance. Indeed, the minutes of the July 25-26 FOMC meeting showed that policymakers continued to prioritize fighting inflation. This came against the backdrop of a U.S. CPI report showing a modest rise in consumer prices in July. Also, U.S. PPI climbed slightly more than expected, suggesting that the battle to bring inflation back to the Fed’s 2% target is far from won. Additionally, newly released US macro data continues to point to a remarkably resilient US economy, opening the door for the Federal Reserve to raise interest rates by 25 basis points before the end of the year.
At the same time, the outlook remains supportive of high U.S. Treasury yields, which, combined with a softening risk tone, supports dollar bulls and should continue to limit GBP/USD gains. The sharp rise in borrowing costs fueled recession fears and weighed on investor sentiment, amid fears of deteriorating economic conditions in China. Traders should be cautious to wait for strong follow-through buying before starting to bet on the cable extending its recovery from the 1.3615 area or 1.5-month low (100-day SMA).
There are no important data releases from Britain and the United States on Monday, and the trend of GBP/USD will depend on the price dynamics of the US dollar. Meanwhile, the focus will be on the Jackson Hole annual meeting later this week, which will feature speeches from central bankers that could add to market volatility. Meanwhile, traders will take cues from flash U.K. and U.S. PMI readings on Wednesday to seize short-term opportunities ahead of key event risks.
