GBP/USD traded lower on Wednesday, dipping to just under 1.3150 before edging off the lows into the close. The pair has remained under Dollar pressure after the Federal Reserve turned hawkish, while UK developments have provided little counterweight. On the technical picture, the daily chart shows the rate has broken below both the 50-day EMA and the 200-day EMA, which have converged near 1.3400 and now act as resistance around 225 pips above spot. With the Stoch RSI mid-range, the chart leaves scope for further downside before conditions appear stretched, and there is limited support visible ahead of 1.3000.
UK rate policy has offered limited support. The Bank of England kept Bank Rate unchanged last week, with two of nine members voting for a hike, and the next decision is due in late July. Political uncertainty has also increased following Keir Starmer’s resignation, leaving a caretaker government while Labour conducts a leadership contest expected to run through the summer, with Parliament returning in September. The week’s key data point is Thursday’s US core PCE release at 12:30 GMT, forecast at 0.3% MoM and 3.4% YoY, both slightly above the prior month; near-term levels cited include resistance at 1.3200 and 1.3400, and support at 1.3150, 1.3100, and 1.3000.
Technical and Fundamental Drivers of GBP/USD Weakness
Given the Pound’s failure to recover, we see the path of least resistance for GBP/USD as being lower in the coming weeks. The pair is struggling to hold above 1.3150, pressured by a US Dollar that is gaining strength from the Federal Reserve’s firm stance against inflation. Any small bounces in the Pound are being met with selling pressure.
The technical setup on the daily chart confirms this bearish view. Price has fallen decisively below the 50-day and 200-day moving averages, which are now clustered together as major resistance around the 1.3400 level. With momentum indicators not yet in oversold territory, we believe there is significant room for the pair to move down toward the 1.3000 psychological level.
This outlook is reinforced by the latest US inflation figures. With the May Core Personal Consumption Expenditures (PCE) index showing a 3.2% year-over-year increase, it gives the Federal Reserve no reason to consider easing policy soon. In fact, Fed funds futures markets are now pricing in less than a 40% probability of a rate cut before the end of the year, keeping the Dollar well-supported.
In contrast, the UK’s situation offers little support for Sterling. Even with the Bank of England holding rates steady and some members voting for a hike, the currency has weakened. This is partly because recent data showed UK headline inflation falling back to 2.3%, easing the pressure on the BoE to act as aggressively as the market once thought.
Market Positioning and Political Uncertainty
From a derivatives standpoint, this divergence suggests strategies that favor a lower GBP/USD. We are seeing speculative funds in the futures market increase their net short positions on the Pound, according to the most recent Commitment of Traders report. This indicates that buying put options to protect against a drop below 1.3100 or selling into any rallies toward 1.3200 is the prevailing sentiment.
The ongoing Labour leadership contest adds another layer of uncertainty that weighs on the Pound. This political vacuum in Westminster means there is no strong hand guiding economic policy through the summer, leaving Sterling vulnerable. For us, this combination of a strong Dollar, a weak technical picture, and UK-specific uncertainty makes it difficult to argue for any sustained Sterling strength right now.
