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The dollar's pause faces Wednesday's US inflation test, with the pound's recoveries likely to stay shallow.
The Pound to Dollar exchange rate remains in a consolidation phase that Wednesday's US inflation figures will either extend or break.
The pair is at 1.3240.
The RSI has recovered from oversold territory, which relieves the immediate pressure on the pair.
Spot sits below a falling 21-day moving average at 1.3288 and below the 100-day average at 1.3396.
Our preferred outcome is for the weakness to resume once the consolidation ends.
1.3150 is the target on a resumption of downside, close to the 2026 trough at 1.3140.
Above: GBP/USD at daily intervals with the 21-day and 100-day moving averages.
US Inflation the Key Driver
The consensus expects headline CPI inflation to rise to 3.6% year-on-year in September from 3.4%, with a 0.6% month-on-month increase.
Barclays forecasts 3.7%, Investec 3.4%, which sets up a two-way risk around the consensus number.
A print in line with or below 3.6% supports the view that the Federal Reserve can wait until December before raising rates again.
"Inflationary pressures appear to be mostly localised in the energy component, providing policy space for the Fed to defer the next hike until December," says Lloyds.
Goldman Sachs sees a firmer number and argues it would lock in the dollar's gains: "our economists expect another firm US inflation print next week, which would likely keep Fed pricing more stable."
Barclays expects dollar strength to return over the medium term but sees positioning as a near-term headwind, with the market having swung from very short to quite long dollars during this rally.
"Bond market moves have been quite sharp; as a result, global financial conditions are now tightening. This could prompt some reassuring language from the Fed going into the October FOMC, particularly if the CPI print is tame," says Barclays.
A print above the 3.6% consensus supports the dollar and points to a test of 1.3150, while a softer number extends the consolidation.
US retail sales data later in the week adds to the picture, with Lloyds forecasting a 0.4% headline increase.
Bank of England Pricing a Vulnerability
On the sterling side, CIBC Capital Markets says markets are "too deterministic" in pricing a November Bank of England hike.
"Given current market pricing any signs of policy patience, particularly from the deputy Governor, would risk mitigating current November pricing, amplifying GBP challenges given Sterling's high beta status and risk vulnerability," says CIBC.
Goldman Sachs forecasts GBP/USD at 1.28 in 12 months.
Recoveries are likely to be shallow while dollar dominance remains the overarching theme in FX, with last week's high at 1.3380 the cap.
