Sterling is trading modestly higher against the dollar in the Asian session on Wednesday, hovering near 1.3540 after building a base below the 1.3300 handle in early August and rallying more than 200 pips since. Yet the driving force behind this move has come almost entirely from the dollar side, with soft US employment, inflation, and retail figures compressing September rate hike odds to just 35%, while the pound's own rate narrative has remained largely static over the past three weeks. Tuesday's UK jobs data delivered a mixed picture, with wages accelerating but job growth nearly halving, offering little fresh ammunition for sterling bulls. Wednesday's inflation print and FOMC minutes will now determine whether this dollar-driven rebound can sustain its momentum.
The "Borrowed Wind" Rally in Sterling
Cable has climbed over 200 pips since establishing a floor below 1.3300 in early August, reclaiming key moving averages and posting a bullish crossover of the short-term average above the long-term average for the first time since spring—a structural shift rather than a mere bounce. However, this advance has drawn virtually no support from domestic UK fundamentals. Tuesday's labour market report was the first tier-one domestic event in three weeks, and sterling's response was limited to a 35-pip range with a slight decline. Wage growth ticked up to 3.5%, offering marginal support for hawkish policymakers, but job growth nearly halved and the unemployment rate held steady at 4.9% rather than falling as expected, leaving the data with a distinctly mixed "strong and weak" profile. Money markets now price roughly a 72% probability that the Bank of England holds rates steady in September, nearly unchanged from three weeks ago. Sterling is not being bought—the dollar is being sold.
Employment Data: Wage Acceleration vs. Sharp Hiring Slowdown
UK regular pay growth for the three months to June accelerated to 3.5% from 3.4%, slightly beating expectations of 3.4% and offering marginal support to the MPC's hawkish camp. But employment growth nearly halved from 147,000 to 83,000, while the unemployment rate held at 4.9% versus forecasts of a dip to 4.8%. Vacancies for May through July fell to 707,000, the lowest level since 2020 excluding pandemic distortions. The sole bright spot was a decline of 11,000 in claimant count for July, far better than the expected increase of 11,200. Overall, this employment report provided no fresh upside catalyst for sterling. The wage data offered a modest positive, but the signals of a cooling labour market were equally clear.
Wednesday's Double Test: Inflation Data and FOMC Minutes
At 14:00 Beijing time on Wednesday, UK July inflation data is due, with headline CPI expected to rise to 2.9% year-on-year from 2.6%, while core CPI is forecast to ease to 2.5% from 2.6%. The combination of a rising headline and falling core is the most favourable configuration for the Bank of England to hold rates steady at its September meeting—energy-driven inflation can be attributed to external factors, while the core slowdown reflects true domestic demand conditions. Services inflation stood at 3.6% in June, remaining the key variable the committee is watching. Later, at 02:00 Beijing time on Thursday, the FOMC minutes from the late-July meeting will be released. Those minutes predate every piece of economic data that has reshaped September rate expectations—the shrinking payrolls, the moderate CPI, and the decline in retail sales. The minutes capture the debate at the time rather than predictions, and markets will trade on the conditions attached to that debate rather than the vote itself.
Outlook
Sterling's rebound of over 200 pips since early August has been driven almost entirely by dollar weakness, as US data deterioration compressed September rate hike odds from above 82% to 31%. UK employment data was mixed, with wage acceleration coexisting with a sharp hiring slowdown, failing to provide fresh ammunition for sterling bulls. Wednesday presents a dual test from UK inflation and the FOMC minutes: a combination of rising headline but falling core CPI would reinforce the case for the Bank of England to stay on hold, while the FOMC minutes could influence dollar direction by revealing internal divisions. This week's dense calendar of UK data may determine whether this dollar-driven rally can evolve into a sustained trend.
As of 13:56 Beijing time on August 19, Cable was trading at 1.3541/42.
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