GBP/USD holds modest gains in mid-1.3100s, below weekly high set on Wednesday

• GBP/USD is receiving support from a combination of factors, although it lacks bullish conviction.
• Expectations for a slower BoE rate cut cycle continue to support sterling.
• Bets on a bigger Fed rate cut in September weigh on the USD and provide further support.

GBP/USD is trading with a positive trend in the mid-1.3100s during the Asian session on Thursday, although it lacks strong buying and remains below the weekly peak reached the previous day.

The British pound (GBP) continues to be supported by expectations that the Bank of England (BoE) rate cut cycle is more likely to be slower than in the Eurozone or the United States. The stakes were raised by a survey by the British Retail Consortium that showed spending in August rose 1.0% from a year earlier, marking the strongest rise since March. This, along with a softer US Dollar (USD), is proving to be a key factor acting as a tailwind for the GBP/USD pair.

The jobs and labor swings survey (JOLTS) released on Wednesday showed that job openings fell to 7.673 million in July, the lowest level since January 2021. In addition, dovish remarks from Fed officials raised bets for a bigger interest rate cut at the upcoming FOMC policy meeting on September 17-18 and pushed US Treasury bond yields to a more than one-year low. This in turn keeps the USD bulls on the defensive and provides some support to the GBP/USD pair.

That said, the market’s cautious mood is helping to limit downside for the safe-haven greenback. Traders also appear reluctant to place aggressive directional bets ahead of crucial monthly US employment data – popularly known as the Nonfarm Payrolls (NPF) report on Friday. This, in turn, is seen as limiting GBP/USD’s upside. However, the fundamental backdrop appears tilted in favor of the bulls and suggests that the path of least resistance for spot prices is up.

Turning to key data risk, investors will take cues from the US economic record on Thursday – featuring the ADP private sector employment report, weekly initial jobless claims and ISM services PMI. This, along with US bond yields and broader risk sentiment, could boost USD demand and produce short-term trading opportunities around GBP/USD later in the early North American session.