Sterling Surges Past 1.3500 as Rate Cut Expectations Fade

The Pound Sterling has climbed above 1.3500 against the US Dollar during European trading hours Monday, capitalizing on diminishing Bank of England rate cut expectations and a weakening greenback.

I've been watching this currency pair closely, and it's fascinating how the tables have turned. Just last week, GBP/USD was struggling, but now it's found solid footing around 1.3530 as inflation concerns persist in the UK economy.

BoE Monetary Policy Committee member Catherine Mann's recent comments seem particularly significant here - she's advocating for maintaining the current bank rate to combat inflation risks. This hawkish stance is giving sterling some much-needed muscle in the forex arena.

UK housing data released today shows prices growing at 2.1% year-on-year in August, down slightly from July's 2.4%. Monthly figures actually declined 0.1% against expectations of a 0.2% increase. Nationwide's Chief Economist Robert Gardner points to the obvious - affordability remains stretched with mortgage costs still triple their pre-pandemic levels.

What's particularly interesting is the Bloomberg report suggesting UK Chancellor Rachel Reeves might impose a windfall tax on commercial banks. She's eyeing those juicy profits they're making from taxpayer deposits at the BoE. Smart political move or market disruption waiting to happen? Time will tell.

Meanwhile, the dollar continues to lose ground as traders increasingly bet on Fed rate cuts. The CME FedWatch tool shows over 87% probability of a 25 basis point cut in September, up from 84% last week. This week's upcoming labor market data, especially the August Nonfarm Payrolls report, could prove decisive for the Fed's next move.

For traders watching this pair, the technical picture has improved considerably, though I'd be wary of potential volatility ahead of those critical US employment figures.