The Pound Sterling has increased by 0.3% against the US Dollar and is performing well compared to most of the G10 currencies. Yield spreads have stayed stable, which supports the pound as we look ahead to upcoming PMI data and retail sales. Market expectations for easing from the Bank of England are declining, with less than 50 basis points anticipated by the end of the year. A 25 basis point cut is expected in August, and discussions are ongoing about more easing needed for 2025.

Technical Analysis Insights

The Relative Strength Index is close to a neutral level at 50, with recent support at 1.34. The near-term outlook suggests potential growth within a range between 1.3400 support and resistance above 1.3550. This information is meant for informational purposes only and is not investment advice. It includes future predictions that come with risks and uncertainties. It’s important to do thorough research before making investment decisions. Mistakes may occur, and there is a risk of significant loss in open market investments. The market’s lower expectations for easing are a key indicator for Sterling’s future. Although headline inflation recently reached the 2% target, the important services inflation remains high at 5.7%. This suggests that the central bank will tread carefully, providing solid support for the currency. Recent economic data backs this view, showing that retail sales in May rose by 2.9%, much higher than expected, indicating strong consumer spending. This resilience lessens the need for immediate monetary stimulus. As a result, we expect yield spreads to continue favoring the pound over the dollar.

Strategic Trading Opportunities

Given the technical support near 1.3400, we believe selling out-of-the-money put options on the GBP/USD pair is a promising strategy. This allows traders to earn a premium while suggesting that the downside risk is limited. Historical data during similar policy divergence periods indicates that support levels usually hold strong. For those with a clearer direction, we recommend buying call options with strike prices above the current level, aiming for a rise toward the 1.3550 resistance area. The near-neutral Relative Strength Index suggests there is still room for upward movement before the market becomes overbought. A significant breakthrough above this level may lead to further buying. Create your live VT Markets account and start trading now.

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