Ella 
In early European trading on Tuesday, the pound fell to around 1.3125 against the dollar. A stronger dollar ahead of key U.S. economic data dragged the pair lower. Sarah Breeden, deputy governor of the Bank of England, will speak on Tuesday evening before the U.S. releases its ISM manufacturing PMI.
According to the CME FedWatch tool, investors are increasingly confident that the Federal Reserve will begin to ease monetary policy at its upcoming meeting in September, with the probability of a 25 basis point (bps) interest rate cut approaching 69%. Federal Reserve Chairman Powell not only said at the Jackson Hole annual symposium last month that “the time for policy adjustments has come.”
More firm interest rate cuts from the Fed could weigh on the dollar in the short term. Analysts at Rabobank currently expect the Fed to cut interest rates four times between September and January before remaining on hold for the remainder of 2025. Friday’s U.S. nonfarm payrolls report (NFP) will be more important than usual and may provide some hints about the size and pace of interest rate cuts by the Federal Reserve. The U.S. economy is expected to add 163,000 jobs in August, with the unemployment rate falling to 4.2%.
On the other hand, markets do not expect the Bank of England to cut interest rates at its September meeting, while there is an 87.2% chance of a 25 basis point cut at the November meeting. In the absence of top UK economic data this week, USD price dynamics will be the main driver for GBP/USD.
