GBP/USD Rally Driven By US Dollar Weakness
We are looking at a GBP/USD rally that is driven entirely by the US Dollar side rather than genuine British economic strength. Following the Federal Reserve’s decision to hold its key rate at 3.50% to 3.75%, the sterling managed to push past the 1.3300 level to touch a two-day high near 1.3350. However, this sudden surge looks temporary and resembles a rented rally that we expect traders will have to pay for very soon.
Technically, we see a heavy ceiling just below the 1.3400 mark where the 50-day and 200-day exponential moving averages have converged. This specific technical barrier has successfully capped every upward move since mid-July, establishing a strong line of defense for sellers. Derivative traders should use this converged band as a clear reference point to structure their risk over the coming weeks.
We believe the most viable strategy for options and futures traders is to fade this strength and short the pair as it approaches the 1.3400 level. Buying put options or establishing short positions near this resistance offers an excellent risk-to-reward ratio. Our immediate targets for this downward move rest at the reclaimed 1.3300 support shelf, with a secondary target down at 1.3250.
GBP Lacks Fundamental Support For Breakout
To put this in perspective, historical data shows that when the Bank of England and the Fed both hold rates with hawkish dissenters, the currency without forward guidance is easily faded. Furthermore, with UK inflation currently stabilizing near 2.2% and recent June retail sales showing a surprise 0.5% month-on-month increase, the domestic economy is solid but not strong enough to force a unilateral breakout. This macroeconomic backdrop suggests that without an extremely hawkish shift from the Bank of England, the pound lacks the fundamental backing to sustain a move higher.
We must remain highly disciplined and set our invalidation level on a daily close above the 1.3400 mark. A clean breakout above this level would shift our bias and open the way for a run toward the mid-July peak near 1.3550. Until that threshold is crossed, we should treat any upward spikes in the sterling as prime selling opportunities.
GBP/USD climbed back above 1.3300 and reached a two-day high just over 1.3350 after the Federal Reserve kept its 3.50% to 3.75% target range at 18:00 GMT on a 9-3 vote, with three members favouring an immediate quarter-point rise. The move came after a quiet London session in which the pair held a 30-pip band around 1.3300, before reacting to the US decision. The market focus now turns to the Bank of England at 11:00 GMT on Thursday, where a 7-2 hold at 3.75% is expected, alongside a Monetary Policy Report and Minutes, and a Governor’s briefing at 11:30 GMT. On the chart, the 50-day and 200-day EMAs remain converged just under 1.3400, a cap on rallies since mid-July.
With no Summary of Economic Projections and no forward guidance, US rate pricing eased: futures put at least one increase by September 16 near 64%, versus roughly 80% beforehand, while the December two-hike probability fell to roughly 42% from 57%. US data due at 12:30 GMT on Thursday include core PCE at 0.2% MoM and 3.3% YoY, preliminary Q2 GDP at 2.1%, and initial jobless claims at 200K versus a 187K prior. Key levels cited are resistance at the EMA band just under 1.3400, then the mid-July peak near 1.3550; support sits at 1.3300, followed by 1.3250 and the summer base just under 1.3150.
