The GBP/USD pair is struggling to recover and is trading just above 1.3400, remaining in negative territory. The outlook stays bearish as the USD performs better, thanks to reduced worries about a possible US economic slowdown. The EU-US trade deal includes a 15% tariff on goods and an EU investment of $600 billion in the US. This week, the USD experienced its largest drop in a month, but gains for GBP/USD were limited by resistance at the 1.3600 level.

Sterling Under Pressure

The GBP/USD pair has fallen for two days in a row, showing a decline of 1% in that time. Weak business activity, job cuts in Britain, and worries about government finances are putting pressure on Sterling. The failed attempt to break the resistance level at 1.3576 adds to these concerns. The recent trade deal is also affecting EUR/USD, which has dropped toward 1.1650, as the Euro struggles to attract demand amid strong USD performance. Additionally, Gold is trading below $3,350 due to positive risk sentiment and rising US bond yields. Key upcoming events include America’s August 1 trade deadlines, the Federal Reserve’s interest rate decisions, and Nonfarm Payroll reports, all of which could create a volatile week in the market. Discussions about when the Federal Reserve might cut rates continue amid global economic uncertainties.

Market Volatility Ahead

We expect the downward pressure on GBP/USD to continue, making long-dated put options an appealing strategy. The recent S&P Global/CIPS UK Composite PMI has dropped to a seven-month low, confirming weak business activity. This suggests that the inability to break key resistance is a significant bearish signal. Job cuts are a major concern, with UK job vacancies falling for 23 straight months as of May 2024, worsening the negative outlook. Public sector net debt is around 99.8% of GDP, the highest level since the 1960s, further weighing on the pound. We see little chance of a short-term reversal. The upcoming Nonfarm Payrolls report and Fed interest rate decisions are crucial events that will likely bring significant market volatility. Historically, these reports can cause intraday swings of over 100 pips, creating opportunities for traders anticipating price movement. Consequently, we are considering straddle or strangle strategies to benefit from expected price changes, regardless of direction. The euro’s struggle for demand is a common theme in the market, reinforcing our belief in the dollar’s strong performance. Additionally, pressure on gold is linked to rising US bond yields, with the 10-year Treasury yield remaining above 4.2%. This environment makes holding assets that do not yield interest more expensive, further encouraging capital to flow into the dollar. Create your live VT Markets account and start trading now.

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