The British pound is losing ground even though money market expectations are rising that the Bank of England will keep interest rates at 4% until the end of the year, as signs of accelerating inflation and a more resilient economy reduce the need for further easing.

On Monday, traders lowered expectations for another quarter-point rate cut this year, with swaps at one stage pricing the probability of such a move at less than 50%. Earlier this month, a cut had been fully priced in.

The paradoxical dynamics observed in the foreign exchange market point to a complex mix of factors influencing the pound's exchange rate. On the one hand, rising expectations of steady interest rates should support the national currency, as higher rates usually attract investors seeking higher returns. However, it seems that other forces are exerting stronger pressure on the pound. One such force may be concerned about the long-term outlook for the UK economy. Despite signs of resilience, risks remain related to the impact of U.S. tariffs, global economic uncertainty, and inflationary pressures. Investors may fear that the Bank of England will eventually have to ease monetary policy to support economic growth, even if this seems unlikely in the short term.

In addition, global factors such as the U.S. dollar's performance and the policies of other central banks should not be overlooked. Tomorrow's data will help shed light on the pound's further direction. Inflation figures are expected, showing a rise in the headline rate to 3.7% in July. The Bank of England forecasts a peak at 4% in September, twice the bank's target.

Bets on monetary policy easing have diminished after the unexpectedly hawkish Bank of England meeting in August. Although officials cut rates by 25 basis points, four members of the Monetary Policy Committee voted against it, raising questions about whether the bank will stick to a quarterly pace of rate cuts through the end of the year.

Since then, stronger data have only heightened concerns. A report released last week showed that gross domestic product rose 0.3% in the second quarter, exceeding the 0.1% forecast by both private-sector economists and the Bank of England. This followed a release a few days earlier showing that the labor market was performing better than analysts had expected.

If tomorrow's inflation data show an increase, there will be fewer reasons to sell the pound, which could return a bullish market to the GBP/USD pair.

As for the current technical picture of GBP/USD, pound buyers need to reclaim the nearest resistance at 1.3520. Only this will allow them to target 1.3555, above which a breakout will be quite difficult. The furthest target will be the 1.3590 level. In case of a decline, bears will attempt to take control of 1.3480. If they succeed, a breakout of the range will deal a serious blow to bulls' positions and push GBP/USD down to the 1.3445 low, with a prospect of reaching 1.3405.

As for the current technical picture of EUR/USD, buyers now need to think about reclaiming the 1.1670 level. Only this will allow them to target a test of 1.1700. From there, they could climb to 1.1730, but doing so without support from large players will be quite challenging. The furthest target will be the 1.1768 high. In the event of a decline in the instrument, I expect significant buying interest only around 1.1635. If no one shows up there, it would be better to wait for a renewal of the 1.1600 low or to open long positions from 1.1565.