GBP/USD falls on Friday, trading around 1.3538 and down roughly 0.40% as Federal Reserve Chair Kevin Warsh adopts a firm stance on inflation, increasing expectations that the central bank could raise interest rates at its September meeting.

Warsh offered a clearer view of his monetary policy position after previously declining to submit a projection in the Federal Reserve’s June Summary of Economic Projections. While he acknowledged that recent summer inflation data had been more favorable than expected, he emphasized that core inflation has not improved as much as anticipated.

The Fed Chair stressed that policymakers need convincing evidence that inflation is moving sustainably toward the central bank’s target. Otherwise, he suggested that further policy action may be necessary. Warsh also noted that consumer spending remains healthy and the labor market is stable, but described the inflation situation as more concerning.

He reaffirmed the Fed’s commitment to its 2% PCE inflation target, reinforcing expectations that policymakers may prioritize price stability over potential economic weakness.

The hawkish tone triggered renewed demand for the US Dollar. The US Dollar Index climbed more than 0.38% to around 99.49, while the benchmark US 10-year Treasury yield increased nearly 1.5 basis points to 4.686%.

Interest-rate expectations also shifted significantly. According to Prime Terminal, markets raised the probability of a 25-basis-point Fed rate hike in September from 34% a day earlier to 43% before Warsh’s comments. Following his speech, the probability increased further to around 50%.

The repricing of Fed policy has strengthened the Dollar and created additional downside pressure on GBP/USD. Sterling’s near-term outlook could remain vulnerable if upcoming US inflation and labor-market data continue to support a more hawkish Fed stance.

Trade idea:

GBP/USD remains bearish below 1.3600; selling rallies toward 1.3560 could target 1.3450, while a break above 1.3650 would weaken the bearish outlook.