The GBPUSD pair bounced back from an important support level due to US inflation data coming in lower than expected. This data did not push the US dollar to new highs, and US Treasury yields returned to levels seen before the inflation report. Currently, the market expects two rate cuts by the end of the year, with the Federal Reserve likely to keep rates steady in its next meeting. In the UK, a higher-than-expected Consumer Price Index (CPI) report initially raised expectations for a more aggressive monetary policy. However, weak employment data has kept alive the possibility of a 25 basis point rate cut at the upcoming Bank of England meeting.

Market Trends And Forecast

Traders are closely watching economic data and the upcoming tariff deadline, which may cause market disruptions if it is not postponed. On the one-hour chart, there is a potential trading range between the 1.3368 support and the 1.3480 resistance. A breakout above this range could lead to buyers aiming for a rise to the 1.36 level, while sellers might target a drop to the 1.32 level. With mixed economic signals, we believe GBPUSD will remain stable in the near term. The recent US inflation rate of 3.3% was lower than expected but did not create lasting weakness for the dollar. This supports our view that derivative markets, which see over a 60% chance of a Federal Reserve rate cut by September, are already prepared for a shift towards a more dovish stance. On the UK side, the situation is just as complicated. Although services inflation remains high at 5.9%, the unemployment rate recently rose to 4.3%, giving the central bank some leeway to ease policies. As a result, the market is pricing in a strong chance of a rate cut by August, which puts a cap on the pound’s strength.

Trading Strategies And Market Outlook

In the coming weeks, we plan to sell volatility within the 1.3368 to 1.3480 range. Strategies like selling strangles will allow us to collect premiums while the market processes the contrasting economic data from both countries. This strategy benefits from the expected sideways price movement until clearer directions for policy emerge. A breakout upwards towards the 1.36 level will likely need a significant delay in the Bank of England’s rate-cutting cycle. If upcoming UK wage or inflation data comes in unexpectedly high, we would switch to buying call options to capture that upward movement, signaling that the UK’s rate edge over the US may last longer than currently thought. On the other hand, a break below the key support level is quite possible, especially if the UK cuts rates in August while the US keeps its rates steady. Historically, when one country eases its monetary policy while another holds firm, it tends to weaken the currency of the nation that is easing. In this scenario, we would prefer buying put options targeting a fall to the 1.32 level. Traders should also keep an eye on rising trade tensions between the US and China. Any significant retaliation from China against new tariffs from Washington could lead to a global flight to safety, benefiting the US dollar and potentially pushing the currency pair below its support level, regardless of domestic data. Create your live VT Markets account and start trading now.

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