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The pound sterling traded flat against the US dollar during early Asian trading on Friday (Sept. 18), with the GBP/USD pair hovering around 1.3360. Investors are still weighing the interest rate decisions made by the Federal Reserve and the Bank of England, while attention now shifts to UK retail sales data for August, scheduled for release today.

The Bank of England maintained its benchmark interest rate at 3.75% during its September meeting on Thursday. The decision was reached via a 6–3 vote, with three members favoring a 25-basis-point hike to 4.00%. This divergence in views arose as inflation remains above the central bank's 2% target.

Despite opting to hold rates steady, BOE officials warned that the likelihood of tightening is increasing. According to LSEG data, the market anticipates a hike of at least 25 basis points at the November meeting. Investors are factoring this expectation into their assessment of the pound's outlook following the decision to keep rates unchanged.

From the United States, the Federal Reserve raised interest rates by 25 basis points to a range of 3.75%–4.00% on Wednesday—the first hike since 2023. Fed Chair Kevin Warsh emphasized that inflation remains too high and has persisted for too long. He also noted that inflation figures over the summer have not yet shown meaningful improvement in the underlying trend.

Expectations of further US tightening are also limiting the scope for sterling to strengthen. According to the CME FedWatch tool, the probability of a rate hike at the October meeting stands at approximately 53.1%, up from nearly 44% the previous day. With both central banks facing inflationary pressures, market participants are awaiting economic data to gauge the extent to which interest rates might still be raised.