GBP/USD drew dip-buying interest during Friday’s Asian session, ending a two-day slide after marking a weekly low a day earlier, but the rebound stalled above the 1.3500 psychological level. Expectations for Federal Reserve rate rises eased after a soft US Producer Price Index (PPI) print on Thursday, while Wednesday’s Consumer Price Index (CPI) was in line with forecasts, reinforcing the view that inflation pressures are cooling and giving the Fed scope to keep rates steady, which weighed on the US Dollar (USD) and lent the pair support.
Safe-haven demand for the greenback limited losses as Middle East tensions remained elevated, with the US-Iran standoff over the Strait of Hormuz keeping a geopolitical risk premium in place. Further restraint on sterling came from mixed UK macro data on Thursday. Attention now turns to Friday’s US releases, including monthly Retail Sales and the preliminary University of Michigan Consumer Sentiment Index, alongside Fed commentary and geopolitical headlines, while the pair was positioned to finish the week broadly flat.
Technically, GBP/USD remained above the 100-period Simple Moving Average (SMA) on the four-hour chart, with the average near 1.3422 acting as initial support; a break below would suggest a deeper corrective move.
Trading Strategy: Buy-On-Dips with Limited Upside Appetite
We suggest derivative traders focus on buying the dips for the GBP/USD pair as long as it holds above the crucial 100-period Simple Moving Average near 1.3422. However, because the pair is currently struggling to break past the 1.3500 key resistance level, we must avoid chasing the market upward. This cautious approach is essential as the spot price appears poised to end the week relatively flat.
Our constructive outlook is backed by cooling US inflation, with the consumer price index hovering at a stable 2.4% annually, easing the pressure on the Federal Reserve to raise rates. Coupled with a soft Producer Price Index, this trend historically weakens the US Dollar and opens the door for GBP gains. To exploit this, we recommend employing limited-risk strategies like bull call spreads to target a break toward 1.3600.
Risks and Key Data Events: Geopolitics and Economic Releases
However, we cannot ignore the safe-haven demand keeping the US Dollar afloat due to rising geopolitical tensions between the US and Iran over the Strait of Hormuz. Harsh rhetoric from Treasury Secretary Scott Bessent indicates that sanctions could tighten further, potentially triggering sudden spikes in USD strength. Therefore, we advise keeping tight stop-losses just below the 1.3420 mark or buying cheap out-of-the-money USD call options as a hedge.
Looking ahead, upcoming US retail sales data, which analysts forecast to grow by a modest 0.2%, will likely dictate the next major swing. Mixed UK economic growth data has historically capped the Pound’s upside, suggesting that explosive gains are unlikely in the immediate future. For the next few weeks, we believe traders should maintain a flexible, range-bound trading strategy rather than betting on a major breakout.
