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Gains in the Pound to Dollar exchange rate (GBP/USD) are possible, but upside is entirely dependent on U.S. Dollar weakness.
The dollar starts the new month on a softer footing and this has allowed GBP/USD to rise to 1.3530 at the time of writing on September 01.
The gains in the exchange rate are purely a function of dollar weakness as opposed to pound strength (as we see GBP is underperforming against most major currencies), confirming that it is indeed the 'big dollar' that's in charge here.
The Dollar softened through August as investors saw a higher likelihood of the Federal Reserve cutting interest rates later this month, and hopes for further cuts beyond September will keep the currency soft.
Fears over President Donald Trump's meddling in the Federal Reserve haven't helped the Greenback, allowing the GBP/USD pair to drift higher from an August 01 open at 1.32 to close the month at 1.35.
Gains take the pair above the nine-day exponential moving average, leaving our Week Ahead Forecast model looking for further gains, all else equal.
We are targeting a move to the August 14 high at 1.3594 in the coming days, while 1.3631 becomes a prospect for later in the month.
Although upside is preferred, we would caution readers that momentum signals are rather flat and uninspiring at the time of writing, which tells us that upside isn't particularly strong.
If anything, these signals suggest the market is caught in something of a range-trade for now, which speaks of the need for new directional triggers.
To be sure, a lot of 'bad news' is already in the price of the Dollar: tariffs, Fed meddling, slowing economy and Fed rate cuts.
This means headlines on these topics aren't particularly stimulating, which is keeping the dollar off the floor and helping it resist the kind of losses that characterised the first half of the year. For sure, a retest of the 2025 high at 1.3788 in GBP/USD is a distant prospect.
GBP/USD stands to end the first week of September with a gain if Friday's non-farm payroll data shows a clear downshift in U.S. employment, which would add to bets for further interest rate cuts at the Federal Reserve.
However, expectations for a 78K outturn in payrolls reflects a pretty downbeat consensus ahead of the result, and an upside surprise is therefore possible. If so, the Dollar could find itself better supported, which would cap GBP/USD upside ambitions and ensure the pair remains caught in the broader sideways range that has been with us since most of the summer.
Ahead of the Friday marquee data release, look for August survey data from ISM's PMI reports to provide interest; they are anticipated to show an economy that is slowing but still subject to high prices.
The 'prices paid' component of Monday's manufacturing PMI should be notable in this regard as it is expected to register at 65.2%, while the headline PMI should show manufacturing contracted in August with a reading of 49. So high prices and sluggish growth is the message.
The services PMI is due on Thursday, and the headline should show a decent 50.4%, which suggests America's largest economic sector is humming along, albeit below potential.
Any major deviations from the expectation could cause some near-term volatility in Pound-Dollar.
There are no major events on the UK calendar this week.