The GBP/USD pair rose about 100 pips as a weaker US Dollar followed a credit rating downgrade and a recent EU/UK defense agreement. The pair is now approaching significant resistance at 1.3443/44 after recovering from the correction low of 1.3139 on May 12, where it retraced 76.4% of a previous pullback. During the European session, GBP/USD traded above 1.3350, reaching its highest point in nearly two weeks. This rise is due to overall weakness in the US Dollar. It follows Moody’s downgrade of the US credit rating, suggesting that the pair still has room to grow before hitting overbought territory.

Price Movements During The Week

This week, GBP/USD showed two-way movements within a 150-pip range, closing on higher levels as the US Dollar lost momentum. Optimism about the US-China trade truce faded, allowing the GBP to recover after a tough start. Now that GBP/USD is nearing a long-term resistance zone around 1.3443/44, the recent price movements indicate that a technical overextension may happen if upward momentum continues without pause. The rise from 1.3139 has filled most of the Fibonacci retracement levels, crossing about 76% of the previous decline. At these heights, profit-taking often becomes attractive, especially if the pair struggles to break above the resistance. The increase has mainly been fueled by the Dollar’s weakness, partly due to the downgrade by Moody’s, which raised doubts about US fiscal stability and added pressure on the Dollar. Timing these sentiment-driven retreats in the Dollar can be tricky and short-lived unless further data or signals indicate ongoing problems, like poor macro indicators or increased risk in US stocks. In contrast, the GBP has gained some support from defense-related diplomacy between the EU and UK, which traders see as a sign of stability, allowing the Sterling to rise temporarily. Given that traders were already positioned short at the beginning of the week, there was space for a squeeze. However, as mentioned earlier, without robust data from the UK to support rate gains, the upward movement may struggle above these key levels, particularly if yield spreads flatten again or US inflation data surprises positively.

Market Dynamics And Trader Sentiment

As always, we’re paying attention to market sentiment, not just the numbers. Earlier this week, prices moved both ways within a tight 150-pip range. The lack of strong commitment from buyers or sellers indicated that a clear direction was being delayed. When the Dollar weakened midweek, GBP/USD started to trend upward. We are now closely watching the pattern of intraday pullbacks. If these become less steep and find support more quickly—especially above 1.3350—it would indicate active buying. However, as we approach stretched technical areas like 1.3443, the risk of fading momentum increases. Moving forward, it’s important to see if we break the highs and if trading volumes confirm the strength of the movement. Without that confirmation, we may face a stall or worse — a correction back towards the 1.3250 area, where recent support held firm. Therefore, derivative traders might want to be cautious about chasing upward breaks and instead focus on mean-reversion opportunities or positioning for range-bound scenarios unless the Dollar declines speedily. As we face upcoming events and shifting appetite for risk, each swing in USD sentiment could provide recalibration opportunities. Powell’s tone in any upcoming speeches will likely shape the next steps. Create your live VT Markets account and start trading now.

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