Pound: Mixed Data, But Sterling Remains Supported – BBH

Sterling has continued its recent rebound against the dollar, currently trading near 1.36444. Brown Brothers Harriman analyst Elias Haddad notes that despite the latest UK data being mixed, the overall weakness of the dollar is providing the primary upward momentum for sterling. This view aligns with earlier market observations that the pound's current rally is more a case of "borrowing tailwinds," with its driving force coming almost entirely from dollar selling triggered by weak US economic data, rather than a significant improvement in the UK's own fundamentals.

**Diverging UK data, lack of endogenous momentum**

Tuesday's UK labor market report showed clear divergence. On one hand, regular pay growth over the three months to June accelerated slightly, providing marginal support for monetary policy hawks; on the other hand, employment growth over the same period nearly halved, and the unemployment rate failed to decline as expected. This pattern of "mixed strength and weakness" failed to provide sterling bulls with fresh, powerful "ammunition." Money market pricing shows that, as of writing, the market still sees the Bank of England holding rates steady in September as the dominant scenario, little changed from weeks ago, indicating that sterling's own rate narrative has not seen a substantive shift.

**Dollar weakness as the primary driver**

Sterling's strength is mainly attributable to selling pressure on the dollar side. A series of recent US data points—including employment, inflation, and retail sales—have all been soft, significantly dampening market expectations for further tightening by the Federal Reserve. The dollar has therefore extended its pullback, providing a broadly supportive environment for appreciation in major non-US currencies, including sterling. BBH's analysis confirms this logic, emphasizing that GBP/USD strength is driven by broad dollar weakness. Consequently, upcoming US economic data and Fed-related developments remain the key variables influencing this currency pair's trajectory.