GBP/USD gathers strength above 1.3350 on Fed rate cut hopes

• GBP/USD trades on a positive note around 1.3365 in Tuesday's early European session. 
• The Cable strengthens against the US Dollar, bolstered by upbeat UK Retail Sales and flash S&P Global PMI data.
• The Fed is expected to cut rates at its October meeting. 

The GBP/USD pair gains ground to near 1.3365 during the early European session on Tuesday. The US Dollar (USD) weakens against the Pound Sterling (GBP) amid the expectation that the Federal Reserve (Fed) will cut interest rates in the monetary policy announcement on Wednesday.

The recent softer-than-expected US Consumer Price Index (CPI) inflation data released on Friday has fueled rate cut bets, which weighs on the Greenback. "In the absence of the official data for jobs, they're going to lean on other sources of information, which at this point aren't really going to contradict what they have argued as their reason for cutting," former Kansas City Federal Reserve president Esther George said in an interview.

The US central bank is expected to trim its benchmark interest rate by a quarter percentage point at its October meeting on Wednesday. According to the CME FedWatch tool, traders have priced in nearly a 97% chance of a 25-basis-point (bps) reduction in interest rates to 3.75%-4.00%. This would be the second straight interest-rate cut by the Fed.

The upbeat UK Retail Sales and stronger-than-expected flash S&P Global Purchasing Managers' Index (PMI) data released on Friday underpin the Cable against the USD. The Bank of England's (BoE) Monetary Policy Committee will announce its next interest rate decision on November 6, 2025, with consensus on whether a rate reduction will happen being mixed. 

The Chancellor's Autumn Budget is scheduled for November 26. Economists believe the committee will likely wait to assess the budget's potential impact on inflation before adjusting policy again.  Concerns over the UK's fiscal uncertainty and weakening growth prospects could undermine the GBP.