Sterling was marginally weaker, down 0.1% against the US dollar, yet it remained supported by a sharp repricing of Bank of England tightening expectations over the past week. Improved UK–US yield spreads also provided a fundamental backstop, alongside firmer market sentiment around the UK leadership transition, in otherwise mixed G10 trading as geopolitical tensions resurfaced.
Technically, GBP’s rebound from the mid-1.31s in late June has run into resistance near 1.34, where both the 50-day and 200-day moving averages are acting as caps. Even so, the bank’s strategists kept a neutral-to-bullish stance and pointed to scope for an extension towards 1.36, while framing the near-term trading range at 1.3300–1.3400.
Monetary Policy Outlook and Market Reaction
We see the British Pound firming up against the dollar, driven by expectations of a more aggressive Bank of England. Derivative traders should consider positioning for a move towards 1.36 in the coming weeks. Bull call spreads or buying outright call options with a strike price around 1.3450 could be effective strategies.
The market is reacting to recent UK inflation data, which came in at 2.5% last month, stubbornly above the Bank’s 2% target. This has pushed money markets to now price in a greater than 75% probability of another rate hike at the next meeting. This repricing fundamentally supports a stronger pound.
Yield Spreads, Business Sentiment, and Technical Set-Up
We are also watching the widening interest rate differential between the UK and the US. The UK two-year gilt yield is now trading 25 basis points above its US counterpart, an improvement that makes holding sterling more attractive. This yield advantage provides a solid floor for the currency.
Positive sentiment following the recent UK leadership transition continues to underpin the pound. A recent survey from the Confederation of British Industry showed business optimism at its highest level in over a year. This stability is attracting capital back into UK assets.
From a technical standpoint, the GBP/USD has found strong footing after climbing from the mid-1.31s last month. We see the pair consolidating in a range between 1.3300 and 1.3400 for now, with resistance clustered at the 50 and 200-day moving averages just above 1.3400. We would use any dips toward the lower end of this range as an opportunity to build long positions.
