Sterling slipped to about 1.3380 against the US dollar in Tuesday’s European session as the greenback firmed. The Dollar Index was 0.1% higher at roughly 100.90, while markets positioned cautiously ahead of the Federal Open Market Committee minutes from the June meeting due on Wednesday, which may reshape expectations for the Federal Reserve’s policy path. In the UK, support for the pound was linked to expectations that fiscal principles will be maintained through a leadership transition following Prime Minister Keir Starmer’s resignation, with Andy Burnham described as the front-runner.
Technically, GBP/USD was trading around 1.3380 and has rebounded since finding demand near 1.3140 two weeks earlier. The pair is holding above the 20-day Exponential Moving Average, placed at 1.3320, and momentum remains mildly positive with the Relative Strength Index (14) at 55.7. Resistance is indicated by a downward-sloping trend line near 1.3526, while support is seen first at 1.3320 and then around the June low close to 1.3140.
Technical Outlook and Strategy
We see the GBP/USD pair holding steady above its 20-day moving average, which is a positive sign for us. This stability suggests a strategy of buying on any dips towards the 1.3320 level might be profitable. The perception of a smooth political transition in the UK seems to be providing a solid floor for the pound.
Fundamental Drivers and Trading Plan
Our confidence is bolstered by the latest UK inflation data, which showed the Consumer Price Index for June unexpectedly rising to 2.3%. This persistent inflation makes it less likely for the Bank of England to consider rate cuts in the near future, supporting sterling’s value. Historically, periods of political certainty combined with a hawkish central bank have been beneficial for the currency.
On the other side of the pair, we are cautious about the US Dollar ahead of the upcoming FOMC minutes. The recent US jobs report for June was disappointing, showing only 150,000 new jobs against an expected 190,000. This data could lead to a more dovish tone in the Fed’s minutes, potentially weighing on the dollar.
Given this outlook, we are considering buying near-term call options on GBP/USD. This allows us to capitalize on potential upward movement while clearly defining our maximum risk. We are targeting a move towards the resistance trend line around 1.3526, using the 20-day EMA at 1.3320 as our key level for reassessing the position.
