Pound Sterling Forecast: UK Inflation in Focus after GBP/USD Pulls Back from $1.3570

Modified: Tuesday, 18 August 2026 12:11 BST - Written by Frank Davies

STORY LINK Pound Sterling Forecast: UK Inflation in Focus after GBP/USD Pulls Back from $1.3570

The Pound US Dollar (GBP/USD) exchange rate weakened on Tuesday after the latest UK labour-market data pointed to a further cooling in employment conditions.

At the time of writing, GBP/USD was trading at around $1.3523, down approximately 0.2% on the day and below Monday’s three-month high above $1.3570.

The Pound (GBP) came under modest pressure after the latest employment report suggested that the UK labour market continued to lose momentum.

The unemployment rate held at 4.9% in the three months to June, above expectations for a decline to 4.8%.

Job vacancies fell to 707,000 in the three months to July, their lowest level since 2021, while payrolled employment declined again.

Private-sector wage growth also slowed to 2.8% year-on-year, its weakest rate since late 2020.

The figures reduced pressure on the Bank of England to tighten monetary policy in the near term and encouraged some profit-taking after Sterling’s recent advance.

Markets are still pricing some additional BoE tightening by the end of the year, but the latest data suggests policymakers can afford to remain patient unless inflation pressures accelerate materially.

The US Dollar (USD) found some support on Tuesday after coming under sustained pressure at the start of the week.

GBP/USD had climbed to its strongest level since May on Monday as investors continued to reduce expectations for another Federal Reserve interest-rate increase.

The Dollar has been undermined by a run of softer US economic data, including July’s 0.6% decline in retail sales and signs that inflation pressures are moderating.

However, renewed tensions in the Middle East and a modest recovery in oil prices offered the US currency some defensive support on Tuesday.

Markets still see a September Fed rate increase as possible, although the probability has fallen significantly compared with earlier this month.

Near-Term GBP/USD Forecast: UK Inflation Now in Focus

Looking ahead, Wednesday’s UK inflation figures are likely to provide the next major catalyst for the Pound to US Dollar exchange rate.

The softer labour-market data has reduced the urgency for another BoE rate increase, placing greater emphasis on the inflation release.

A stronger-than-expected CPI reading could revive expectations for tighter UK monetary policy and allow Sterling to challenge the $1.3550-$1.3570 area again.

Conversely, softer inflation would reinforce the message from Tuesday’s jobs figures that domestic pressures are easing and could send GBP/USD back towards $1.3500.

A sustained break below $1.3500 would bring the $1.3460-$1.3470 region into focus.

For the US Dollar, investors will continue to assess incoming labour and activity data for evidence that the Federal Reserve can remain on hold in September.

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TAGS: Pound Dollar Forecasts