Pound Hovers Near Six-Month Highs as Investors Await Key US Events

Sterling extended its sideways trading against the dollar on Tuesday, with the exchange rate hovering near recent highs for a second consecutive session without a clear directional bias. Investors largely stayed on the sidelines ahead of key macro events, awaiting Wednesday's US inflation data and Friday's Jackson Hole central bank symposium to gauge the Federal Reserve's policy path.

**Dollar safe-haven demand and policy expectations pull in opposite directions**

The dollar has rebounded from lows seen since mid-May, driven by heightened safe-haven demand following the US expansion of secondary sanctions on Iran-related economic activities. US Treasury Secretary Bessent said he would continue to push for restricting Iran's economic network, with regional energy supply risks keeping crude prices elevated. However, the impact of higher energy prices on sterling and the dollar is asymmetric—rising oil prices could reignite US inflation expectations, reducing market bets on rapid Fed easing and thereby supporting the dollar; but the UK also faces imported inflation pressures, which could limit the Bank of England's room for further easing. Thus, energy factors are not a straightforward negative for sterling.

**Technical structure remains bullish**

From a technical perspective, cable has already broken above the 1.3500 psychological level, and the current consolidation near highs looks more like a period of accumulation after an advance, with no clear reversal signals. Market analysts suggest that as long as key support zones hold, bulls retain the upper hand. Resistance to the upside is seen around 1.3600 to 1.3640, while a decisive break below the 1.3500 level could trigger a pullback toward the 1.3430 to 1.3470 range.

**Market focuses on inflation and central bank signals**

US July inflation data was relatively mild, strengthening expectations that the Fed will hold rates steady at its September meeting. However, market pricing still shows investors assign a probability of over 75% to at least one further rate hike by the Fed before year-end, mainly due to energy price volatility and lingering inflation stickiness. On the UK side, today's UK inflation data also serves as an additional catalyst for sterling—persistent price pressures could narrow the Bank of England's scope for further easing and support the pound, while a more pronounced slowdown in inflation could reinforce rate-cut expectations. Until policy signals from both central banks become clearer, cable is likely to remain range-bound.