The GBPUSD pair bounced back from an important level after the NFP report came in weaker than expected. This caused broad selling of the USD, as markets changed their views on potential interest rate cuts by the Federal Reserve. Initially, the market expected a 35 basis point cut by the end of the year. However, after the NFP report, this expectation increased to 60 basis points. Federal Reserve officials hinted at a possible rate cut in September. More favorable data could influence Fed Chair Powell at the Jackson Hole Symposium. At the same time, the rise in prices measured by the ISM Services PMI might keep traders cautious ahead of the US CPI release.

Bank Of England Rate Cut Expectations

The Bank of England is expected to lower interest rates by 25 basis points, in line with its quarterly plan. Recent UK data was mixed: inflation rose unexpectedly, but employment figures fell short. The BoE will likely continue its careful and data-driven approach, with another rate cut expected by the end of the year. In technical analysis, GBPUSD bounced off 1.3140 and is approaching resistance at 1.3368. Sellers may look to profit from a price drop, while buyers are hoping for a breakout to higher levels. Shorter timeframes show consolidation and resistance around 1.3310, with upcoming US Jobless Claims and the BoE’s rate decision acting as key market drivers. Recent weaknesses in US jobs data have shifted our outlook and made a Fed rate cut in September seem almost certain. The CME FedWatch Tool now shows over a 75% chance of a cut next month. This change in sentiment makes shorting the US dollar against other currencies attractive. On the other side, the Bank of England is expected to lower rates tomorrow, August 7th, but their situation is unique. The latest inflation report from the Office for National Statistics revealed that the UK CPI remained stubborn at 2.9% in July, well above the 2% target. This forces the BoE to proceed with more caution, suggesting their rate cuts will be slower and more predictable compared to the Fed’s potential changes.

Volatility And Trading Strategies

With the uncertainty surrounding US inflation data next week and the Jackson Hole meeting later this month, we are focusing on volatility. The Cboe’s GBP Volatility Index (BPVIX) has risen to a three-month high near 9.5, as traders prepare for larger price movements. This could make using options, like straddles, a smart strategy to profit from sharp moves without taking a specific directional bet. For traders seeking a direct view, the technical levels provide a clear guide for the coming weeks. We should consider selling the pair near the key resistance of 1.3368, but we need to be agile. The US Jobless Claims report tomorrow will offer another insight; data from last week indicated claims remained stable around 217,000, showing that the labor market is still holding up. It’s essential to be mindful of how quickly the Fed can change its approach, as we learned during the regional banking stress in 2023. That situation demonstrated that once the Fed signals a significant policy shift, it can lead to sustained dollar weakness. If GBP/USD convincingly breaks above the resistance at 1.3368, it could indicate a new upward trend beginning. Create your live VT Markets account and start trading now.

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