BoE-Fed Policy Divergence Still Anchors GBP/USD Direction

Beyond short-term risk flows, GBP/USD direction continues to be shaped by the diverging policy outlooks between the Bank of England and the Federal Reserve. Markets are constantly recalibrating expectations for the pace of rate adjustments on both sides of the Atlantic.

Recent dollar softness, partly linked to strong risk appetite from the tech sector's earnings-driven rally, has given sterling breathing room. However, any hawkish repricing of Fed expectations could quickly reassert dollar strength and cap GBP/USD upside.

Traders are increasingly focused on upcoming UK inflation and labour data, alongside US macro releases, as the next catalysts likely to shift rate differentials and, by extension, the GBP/USD trajectory heading into the next policy cycle.