GBP/USD Bullish Trend

The Pound Sterling is currently weaker, down 0.2% against the US Dollar, and is lagging behind other G10 currencies. The market is waiting for important data releases, including the Consumer Price Index (CPI) on Wednesday and the Bank of England (BoE) meeting on Thursday. Analysts expect inflation to keep decreasing, likely staying in the mid to low 3% range. The BoE is predicted to keep interest rates steady but may take a neutral or dovish approach. Market forecasts suggest a 25 basis point hike by September and a total of 50 basis points by December. GBP/USD remains in a bullish trend, reaching multi-year highs above 1.36, though momentum is slowing. The support level sits below 1.3480, while resistance is seen above 1.3620, with no significant long-term resistance until 1.3750. The financial information shared here carries risks and uncertainties, and should not be taken as investment advice. It’s important to do your research before making financial decisions, as investing in open markets can lead to risks, including the total loss of capital. Sterling’s recent drop, now lagging its G10 peers, reflects changing market sentiment ahead of key economic events. We are particularly focused on how inflation data might influence the Monetary Policy Committee (MPC) meeting this week. While headline CPI is likely to ease, it may still be above the preferred 2% target, tightening pressure on the central bank’s policy decisions.

Central Bank Policy Expectations

The forward curve suggests that the monetary authority will keep rates steady for now. However, we wouldn’t be surprised if they lean towards a more dovish stance, especially if Wednesday’s inflation figures show ongoing cooling. Markets are anticipating a gradual rate-cutting cycle to begin in late summer or early autumn, with current OIS pricing reflecting expectations of a 25 basis point cut by the end of September and possibly 50 basis points by year-end. Bailey and the Committee are trying to find a balance. On one hand, inflation is still above target, and strong service inflation might postpone easing. On the other, a weakening labor market and muted consumer demand give them some flexibility. Dovish comments this week could set the stage for later adjustments, though not drastically, to prepare the market for lower rates in the second half of the year. Technically, GBP/USD has shown strong growth since March, but that momentum is fading. The support level around 1.3480 has been reliable during pullbacks, attracting interest. Resistance at 1.3620 is also strong, with little interest beyond that level, at least until 1.3750. The lack of significant resistance above this area could make it easier for the pair to rise if momentum picks up, but this depends on favorable US data and domestic economic factors. In the near term, focus should be on UK data surprises. If inflation, especially core and services, comes in stronger than expected, we might see delays in the anticipated policy changes. This would typically strengthen the Pound. Additionally, markets may react sharply to shifts in rate expectations on both sides of the Atlantic. Divergence in US moves can increase GBP/USD volatility, even before local data comes into play. Due to the yield differential, it remains tight as both central banks head toward potential easing cycles. Rate spreads have started to narrow again after a brief divergence, which could limit sustained GBP appreciation unless domestic data surprises positively or Powell’s stance turns sharply dovish. Positioning data shows that long GBP positions have increased among leveraged accounts and asset managers since May. This makes GBP/USD susceptible to quick shifts if incoming data disappoints, possibly leading to short-term unwinds and spikes in intraday volatility. Any movements would likely test key levels, especially around 1.3480, and possibly fall further if major data points turn out unfavorably. With key events clustered closely, risk-adjusted positioning and tight orders will be crucial. We have adjusted our intraday risk limits to be more conservative, favoring limited directional exposure through options rather than spot trades. In the next 72 hours, we anticipate significant option activity around 1.3550-1.36, which could lead to sharp price movements based on surprises in CPI or the MPC meeting. If disinflation does not accelerate, a post-data test of 1.3620 becomes likely. Conversely, a dovish surprise may push positioning towards 1.3420, where initial support is expected to hold unless there’s a significant miss. At this stage, trade planning should focus on a measured response to events rather than trying to anticipate outcomes. We’re considering how persistent core inflation metrics might limit the Committee’s options and how the market interprets future communications instead of just the current hold. Dollar dynamics will also play a role. A more cautious Fed tone might support Sterling against other currencies, even with domestic uncertainties. Thus, positioning, especially in GBP/EUR and GBP/JPY, might offer cleaner opportunities as risk premiums in GBP/USD increase leading up to Thursday. Short-term derivatives volumes have risen ahead of CPI, with implied volatilities showing heightened sensitivity. A rise to mid-8% levels over a week suggests that market participants believe the coming days could significantly impact momentum for at least the next month. Sentiment remains fragile, and with positioning increasingly one-sided, even minor surprises could lead to significant shifts. Create your live VT Markets account and start trading now.

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