Sterling hovered around 1.3500 in Tuesday’s Asian session, holding two-day gains against the dollar even as markets pared back expectations of a near-term Bank of England rate rise. Attention turns to UK activity data due on Thursday, with preliminary Q2 GDP forecast at 0.4% versus 0.6% previously, while June GDP is seen slipping 0.1% month on month. The dollar’s tone was steadier, with the Dollar Index near 99.80 as markets awaited Wednesday’s US July Consumer Price Index release.
US inflation expectations centre on a modest uptick without a renewed acceleration: headline CPI is forecast at +0.1% m/m (from -0.4% in June) and 3.4% y/y (from 3.5%), while core CPI is seen at +0.2% m/m (from 0.0%) and 2.5% y/y (from 2.6%). The data feed into Federal Reserve rate expectations after July’s policy statement flagged upside inflation risks, while markets have priced out a September hike following weak July nonfarm payrolls. Technically, GBP/USD held above the 60-day EMA at 1.3403, with support around 1.3456; the 14-day RSI stood at 61.1, and the latest close was 1.3509.
Short-Term Trading Strategies and Bullish Outlook
With GBP/USD holding firm around 1.3500 and staying above the critical 60-day exponential moving average of 1.3403, we recommend derivative traders maintain a bullish bias in the short term. We should consider buying short-dated call options with a strike price of 1.3600 to capture the current upward momentum. This strategy allows us to limit our downside risk to the premium paid while positioning for a potential breakout above the recent high of 1.3509.
The upcoming US CPI release on Wednesday is expected to show core inflation easing to 2.5% year-over-year, which would confirm a gradual cooling of price pressures. If the data meets expectations, it will likely weaken the US Dollar Index, which has already struggled to break above the 99.80 mark. We can exploit this event by utilizing bull call spreads, which will benefit from a rising exchange rate while mitigating the impact of high implied volatility.
Risk Management and Tactical Hedging Approaches
On Thursday, the preliminary UK Q2 GDP data is projected to show a moderate growth rate of 0.4%. However, historical seasonal data shows that August is traditionally one of the weakest months of the year for the British Pound, with the currency falling against the US Dollar in 7 of the last 10 years by an average of over 1%. To protect our positions against a potential seasonal pullback or a disappointing GDP print, we should look to purchase out-of-the-money put options at around 1.3400.
Implied volatility for GBP/USD options typically rises ahead of dual-impact data weeks like this one, offering opportunities for premium sellers once the news settles. We advise trading with tighter stop-losses on spot positions and using structured options to define risk clearly before the volatility spikes. Monitoring the 1.3456 support level will be key, as a daily close below this line would invalidate our bullish outlook and require us to hedge aggressively.
