Insights 
VT 
The pound’s previous decline, sparked by new highs in UK long-term yields, was reversed following a weak US Non-Farm Payroll report. This resulted in the US dollar selling off, amid growing expectations of dovish Federal Reserve moves, with potential rate cuts of 70 bps by the year’s end. A weak US Consumer Price Index could further dampen the dollar as the Federal Open Market Committee meeting approaches.
Despite these shifts, the US dollar remains in a range, affected by potential overstretched bearish positions. If economic activity strengthens post-Fed cuts, future rate cuts might be reconsidered, potentially supporting the dollar. For the pound, the Bank of England maintains a hawkish stance, supported by strong data and rising UK CPI and Flash PMIs, despite some recent selloff due to the UK 30-year yield reaching a cycle high.
Technical Analysis Of GBPUSD
In technical analysis, GBP/USD is influenced by movements around key resistance and support levels, with traders responding to potential breaks or bounces. The daily, 4-hour, and 1-hour charts suggest buyers will likely target higher levels, contingent on maintaining current momentum or breaking key resistance. Upcoming economic reports, including US PPI and CPI, UK GDP, and consumer sentiment, will drive future market moves.
The US dollar weakened after last Friday’s Non-Farm Payrolls report showed a gain of only 110,000 jobs, missing expectations. This soft data has led us to price in three Federal Reserve rate cuts by the end of this year. Consequently, derivative markets are now implying a greater than 90% probability of a cut at the September 17th FOMC meeting.
All attention now turns to the US CPI report this Thursday, with economists forecasting a 0.2% month-over-month rise in the core reading. A softer number would likely trigger further dollar weakness and could be a signal for options traders to buy GBP/USD calls. A hotter-than-expected print, however, could cause a sharp reversal as the market quickly re-evaluates the pace of Fed cuts.
On the pound’s side, the picture is fundamentally different, as the Bank of England remains concerned about sticky inflation. We saw last month’s UK CPI print come in at 3.1%, which keeps pressure on the central bank to delay any further cuts. This policy divergence is the main reason we continue to see underlying strength in the GBP/USD pair.
Market Positioning Strategies
The pair is currently testing the key 1.3590 resistance level after bouncing strongly from the 1.3368 support area. Traders could consider buying short-dated call options with a strike price above 1.3600 to play a potential breakout driven by a soft US CPI report. Alternatively, positioning with put options below the current upward trendline could offer protection if US data comes in strong.
This setup reminds us of the market action back in the spring of 2024, when a similar series of weaker US data points led to a sustained dollar downturn. While we recognize that bearish dollar positioning might be getting crowded, the path of least resistance for the greenback appears to be lower. We would need a significant upside surprise in the data to truly reverse this sentiment.
