US President Trump will meet with UK Prime Minister Starmer this evening. They will discuss a possible trade deal between the US and the UK. The GBPUSD exchange rate has dropped due to weaker-than-expected UK retail sales. The pair had reached a peak near its resistance level but has fallen sharply since then. On Wednesday/Thursday, it hit a high of 1.3586. It later tested the 100-hour moving average but fell below the 200-hour moving average at 1.3464.

Bearish Momentum

The bearish momentum for the currency pair continues. Sellers will be cautious if the price goes above 1.3475. If it stays below this level, the bearish trend remains intact. A rise above 1.3475 could weaken this outlook. For a continued decline, the pair needs to drop below 1.3414, targeting the monthly low and the range between 1.33607 and 1.33784. Macroeconomic factors play a role too. Trump mentioned that he doesn’t prefer a weaker dollar but acknowledges it complicates exports. This could impact USD sentiment, especially with inflation concerns in the background. We think the bearish pressure on the pound is justified, especially after the latest data. The Office for National Statistics reported a sharp 2.3% drop in UK retail sales for April, much worse than the expected 0.4% decline. This highlights the fundamental weakness that Michalowski pointed out and supports a continued downward trend.

Interest Rate Cuts

The Bank of England is expected to cut interest rates by August, likely before the US Federal Reserve does. This difference in policy usually weakens the pound against the dollar, as seen during the 2021-2022 period when the Fed was more aggressive. For traders, this widening interest rate gap makes the dollar more appealing. The potential trade deal mentioned by Trump seems more like political noise for now and shouldn’t distract from the overall trend. His comments on a strong dollar are more significant, especially as the US economy shows strength. The recent Consumer Price Index in the US showed a reading of 3.4%, indicating that inflation remains persistent. This gives the Fed a reason to maintain high rates, which supports the dollar. Derivative traders should consider buying put options or taking on short futures positions, using the 200-hour moving average around 1.3464 as a key risk level. Recent data from the Commodity Futures Trading Commission shows that large speculators are reducing their net long positions on the pound, indicating growing conviction in the bearish outlook. A drop below the 1.3414 level mentioned would signal adding to short positions, targeting around 1.3360. Create your live VT Markets account and start trading now.

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