GBP/USD is attempting a modest rebound during Friday's Asian trading session, edging back towards the 1.3600 mark after two consecutive sessions of decline. Market expectations for future rate hikes by the Bank of England have cooled, while considerable uncertainty surrounding US monetary policy has pushed the pair into a phase of rebalancing between bulls and bears.

The recent pullback in international oil prices is a key factor influencing UK rate expectations. As Brent crude prices have fallen, the immediate upward pressure on UK consumer prices from energy costs has subsided, leading markets to lower their bets on further policy tightening by the Bank of England later this year. Current market pricing indicates a cumulative tightening of around 24 basis points by December, and approximately 36 basis points by February 2027, with the BoE's September meeting pricing in less than a 4 basis point hike, corresponding to a probability of roughly 15%. This suggests the market is essentially no longer betting on BoE action in September. Previously, concerns that regional tensions could push energy prices higher and further stimulate UK inflation had fueled expectations for BoE rate hikes, but this logic is now fading as energy price pressures ease.

The domestic economic environment is also limiting the upside for Sterling. UK inflation rose to 2.9% in July, driven primarily by higher household energy costs, with expectations that inflation could drift slightly higher towards the end of the year. However, underlying performance in the UK labour market remains weak, and economic growth momentum is not strong. For the Bank of England, this presents a classic policy dilemma. On one hand, inflation remains above the 2% target, with energy prices potentially continuing to exert pressure on consumer prices. On the other hand, a weak labour market suggests that further increases in borrowing costs could heighten downside risks to the economy. Consequently, the BoE is more likely to continue observing data in the near term rather than hastily resuming its rate hike cycle.

The relatively limited schedule of UK economic data in the near term has further diminished the Pound's short-term drivers. Strategists at Scotiabank note that the UK economic calendar is quiet ahead of the next major Purchasing Managers' Index data release, and BoE policy communication is also limited. In the absence of fresh economic data and policy guidance, investors are more inclined to adjust Sterling positions based on US dollar movements. Meanwhile, market attention is shifting towards the United States, where Federal Reserve Chair Kevin Warsh is scheduled to speak at the Jackson Hole Economic Policy Symposium. Recent US inflation data remains elevated, with core PCE holding at 3.3% year-over-year, fueling expectations that the Fed may raise rates again this year. If Warsh emphasizes inflation risks and hints that policy rates may rise further, the US dollar could gain support, putting greater downward pressure on GBP/USD. Conversely, if Warsh avoids a distinctly hawkish tone and instead highlights economic growth, productivity, or labour market factors, markets may lower expectations for further US rate hikes. A weaker dollar could then provide renewed upward momentum for Sterling.

Markets appear not to be fully pricing in the potential impact of the Jackson Hole speech. Scotiabank strategists point out that historical experience shows the Jackson Hole symposium can significantly alter market pricing, yet current one-week implied volatility is below recent averages, suggesting investors may be underestimating the market risk from the speech. This indicates a notable event-driven risk for GBP/USD in the short term. With market volatility currently low, if Warsh's policy stance deviates markedly from market expectations, the dollar could adjust quickly, potentially driving GBP/USD to break out of its current technical range.

From a US dollar fundamentals perspective, US rate expectations remain the core variable determining GBP/USD's short-term direction. Persistently high US core inflation means the Fed has not completely ruled out another rate hike, while UK rate hike expectations have notably cooled following the fall in energy prices. If this policy expectation gap widens further, Sterling could face downward pressure. However, with UK inflation still above the policy target, the BoE also lacks urgent conditions to pivot towards easing. Should UK services inflation, wage growth, and overall CPI remain elevated in the future, markets may reassess the BoE's policy path, potentially allowing some recovery in Sterling's rate advantage. Therefore, the current fundamentals for GBP/USD do not present a clear one-sided direction. Cooling UK rate hike expectations limit Sterling's upside, but uncertainty over US rate policy makes it difficult for the dollar to sustain significant strength. Short-term trading is likely to continue consolidating around 1.3600, awaiting the Jackson Hole speech and subsequent UK economic data for new direction.

From a market sentiment perspective, despite the two-day pullback in Sterling, the technical structure retains some resilience. As long as the price does not clearly break below key moving average support, the current correction more closely resembles a technical pullback following an advance rather than a trend reversal. On the daily chart, GBP/USD is trading around 1.3600, remaining above both the 9-period and 50-period exponential moving averages, with the overall technical structure remaining bullish. The 14-period RSI stands at approximately 61, above the 50 mid-line but not yet in overbought territory, indicating that bullish momentum persists, though further upside after the recent advance requires fresh fundamental catalysts. Immediate resistance is first seen near 1.3650, followed by the 1.3700 psychological level; a decisive break above could pave the way towards the 1.3750 area. On the downside, initial support is near the 9-period EMA at 1.3580; a break below could test the 1.3550 region, with more significant support at the 50-period EMA around 1.3480. As long as the price holds above the 50-period EMA, the daily bullish structure remains largely intact.

On the 4-hour timeframe, GBP/USD has experienced two consecutive days of decline, with short-term momentum cooling, but the price remains within a relatively stable uptrend structure. MACD bullish momentum is contracting, and short-term moving averages are flattening, suggesting the market is awaiting new directional catalysts. If the price reclaims 1.3650, the 4-hour timeframe could resume its upward momentum, targeting 1.3700 and then 1.3750. Should support at 1.3580 give way, the short-term correction could extend towards 1.3550, with a further breakdown bringing the 50-period moving average support near 1.3480 into focus. Overall, the 1.3580 area is currently the key battleground for short-term bulls and bears, while 1.3650 represents the crucial resistance for bulls to re-establish upward momentum.

In summary, GBP/USD is currently in a tug-of-war between cooling UK rate hike expectations and US rate policy uncertainty. The pullback in Brent crude prices has reduced near-term UK inflationary pressures, pushing market expectations for the next BoE rate hike towards early 2027, while a sparse UK economic calendar further weakens near-term catalysts for the Pound. In the short term, the Jackson Hole speech will be the key event determining GBP/USD's direction. If Warsh adopts a hawkish stance, dollar strength could drive the pair below 1.3580, potentially targeting 1.3550 or even 1.3480. Conversely, a more dovish tone could trigger a dollar pullback, allowing Sterling to retest 1.3650 and 1.3700. Over the medium term, UK inflation remains above target, which means there is no single policy logic driving Sterling to weaken persistently. Key data on UK inflation, wages, and employment, as well as shifts in BoE versus Fed policy expectations, need close monitoring. Overall, GBP/USD maintains a bullish daily structure, but the short-term phase is event-driven. The 1.3480 level is a critical defense line for the medium-term bullish structure, while the 1.3650-1.3700 zone is the region Sterling must break through to open further upside.