Pound Sterling Price News and Forecast: GBP/USD rises as Fed's Waller tempers Fed hike bets before NFP

Market impact: mildly bullish GBP/USD, but vulnerable to reversal.

The key market change is a reduction in the perceived probability of an imminent Fed hike: Christopher Waller indicated that rates may be held steady if inflation continues to cool, although he retained a clear tightening bias if inflation reaccelerates. The reported repricing—from above 60% for a 25-basis-point hike to 54%—reduces near-term US rate support and can pressure the dollar, benefiting GBP/USD.

The move is not unequivocally dovish. US services activity was stronger than expected, while price pressures within the survey remained a concern. That combination limits the scope for a sustained decline in Treasury yields or the dollar, particularly if incoming labor-market data remains firm. The article also describes the labor market as stable but still exhibiting weak hiring conditions, leaving the Fed outlook highly data-dependent.

Sterling has an additional relative-rate support factor from Huw Pill’s argument that Bank Rate may need to rise toward 4% to contain persistent inflation dynamics. This helps GBP/USD by narrowing the expected policy disadvantage versus the US, but it may also cap broader risk appetite if markets interpret higher UK rates as a response to entrenched inflation rather than stronger growth.

Trading interpretation:

the immediate bias is positive for GBP/USD and broadly negative for the dollar, with possible spillover into other dollar-sensitive assets such as gold and major commodity currencies. However, the article’s reported rise to around 1.3535 appears primarily driven by softer Fed expectations and broader dollar weakness—not by a major improvement in UK fundamentals—so the move may remain tactical rather than a confirmed medium-term sterling trend.

The main catalyst is the US August employment report due Friday, September 4, 2026. A strong payrolls, wages, or employment-participation outcome could restore Fed-hike pricing, lift US yields, and reverse GBP/USD gains. A weak report would reinforce the view that the Fed can remain on hold and could extend sterling’s advance. The market reaction will likely depend on the combination of payroll growth, unemployment, and wage inflation rather than the headline payroll number alone.

Key risks to the bullish interpretation are renewed US inflation concerns, a hawkish reassessment of Waller’s comments, deterioration in UK fiscal or geopolitical sentiment, and evidence that the BoE’s higher-rate stance is damaging UK growth. Traders should monitor Fed-rate probabilities, US Treasury yields, the dollar index, payrolls and average hourly earnings, as well as subsequent comments from Fed and BoE officials.