Pound Extends Decline as Dollar Holds Firm on Fed Rate Hike Bets

During the European session on Thursday, GBP/USD extended the previous session's downturn, facing pressure for a second consecutive trading day, trading near 1.35868. The dollar remained strong following robust economic data on Wednesday, serving as the primary factor weighing on the pair.

**Dollar Resilience Rooted in Rate Hike Expectations**

The dollar's support stems mainly from sustained market bets on potential further rate hikes by the Federal Reserve. Despite reports of progress in US-Iran ceasefire talks and a pullback in Brent crude prices, which lifted risk appetite, the dollar index held above key levels. ING analysts noted that under normal circumstances, such an environment would typically weigh on the dollar, but its current resilience reflects market expectations of a possible Fed rate hike in September. However, according to market sources, following recent softer job openings data, pricing for the potential hike's magnitude has narrowed to around 14 basis points from roughly 16-17 basis points earlier. Markets are closely monitoring the upcoming US ISM services data and ADP employment figures for further clues.

**Pound Lacks Domestic Drivers**

The pound's weakness is not driven by domestic UK factors. The Bank of England last week held rates steady by a 6-3 vote, with a less hawkish tilt than the 7-2 split markets had expected. Governor Bailey downplayed the likelihood of near-term tightening, stating that the disinflationary trend remains on track. Some policymakers even hinted that rate cuts could return to the agenda if geopolitical tensions ease. This dovish undercurrent prompted markets to trim bets on future rate increases, leaving the pound without upward momentum.

**Technical Bias Remains to the Downside**

From a technical perspective, GBP/USD has been trading within a descending channel since mid-July, consistently forming lower highs and lower lows. As long as price remains capped by the channel's upper boundary, short-term momentum stays tilted to the downside. Market analysis suggests that each rebound is weakening in strength, meaning the pound faces fresh selling pressure soon after recovering, with the overall structure still favoring treating rebounds as opportunities to approach with caution.