bulls will be watching for a potential breakout above 1.3590 resistance to confirm a budding inverted head-and-shoulders bottom that could project a longer-term move toward 1.4000
GBP/USD Key Points
- The pendulum of market sentiment has swung (marginally) against expecting any more interest rate cuts by the BOE this year
- Friday’s US reading (the Fed’s preferred measure of inflation) may provide an impetus for a GBP/USD move ahead of a long holiday weekend in the US.
- Bulls will be watching for a potential breakout above 1.3590 resistance to confirm a budding inverted head-and-shoulders bottom that could project a longer-term move toward 1.4000
In a week featuring a holiday and entirely empty UK economic calendar, it’s perhaps not surprising that the British pound is essentially treading water against the in quiet trade.
After the surprisingly split Bank of England meeting earlier this month and a run of decent, if not spectacular UK economic data, the pendulum of market sentiment has swung against expecting any more interest rate cuts by the BOE this year (another rate cut is currently ~40% discounted).
In particular, last week’s hotter-than-expected report (3.8% y/y vs. 3.7% eyed) and a solid flash (53.6 vs. 51.8 anticipated) has traders wondering whether the BOE may be reaching the end of (or at least an extended pause to) its interest rate cutting cycle.
With the likes of the seemingly on track to cut interest rates another two times by 2026, have flipped from trading below the equivalent throughout most of July to a relatively robust 30bps+ premium:
Source: TradingView
Catalysts for GBP/USD may remain thin on the ground for the next 36-48 hours, though Friday’s US reading (the Fed’s preferred measure of inflation) may provide an impetus for a move ahead of a long holiday weekend in the US.
British Pound Technical Analysis: GBP/USD Daily Chart
Source: StoneX, TradingView
From a technical perspective, GBP/USD held above previous support in the 1.3400 area late last week, keeping the near-term bias in the neutral-to-bullish range. Moving forward, bulls will be watching for a potential breakout above 1.3590 resistance to confirm a budding inverted head-and-shoulders bottom that could project a longer-term move toward 1.4000 as central bank interest rates look poised to favor the UK throughout the rest of the year, whereas a drop below 1.3400 could invalidate the setup and flip the near-term bias back to bearish.