Fundamental Overview
The USD came under renewed pressure last Thursday following an in-line US CPI report and surprisingly weak initial jobless claims. The jobless claims data stole the show as initial claims jumped to a new cycle high and the highest level since 2021.
On further analysis, the claims data might have been just a blip as it was negatively skewed by an unusually large spike in Texas. Nevertheless, the data kept the weakening labour market narrative intact and therefore solidified the expectations for three rate cuts by year-end.
Overall, if one zooms out, the US dollar has been mostly rangebound even though the dovish bets on the Fed kept weighing on the currency. Part of that could be the fact that the bearish positioning on the dollar could be overstretched and we might be at the peak of the dovish pricing.
In fact, if the rate cuts trigger stronger economic activity in the next months, the rate cuts in 2026 could be priced out and support the dollar. Nevertheless, the trend is still skewed to the downside, and we might need strong data to reverse it. On Wednesday, we have the Fed rate decision where the central bank is expected to cut by 25 bps and signal two more cuts by year-end.
On the GBP side, on Thursday we have the BoE rate decision where the central bank is expected to keep the bank rate unchanged with a 7-2 vote split as Dhingra and Taylor are seen voting for a cut. The BoE delivered a hawkish cut at the last meeting and since then the data has been coming on the hotter side.
In fact, the latest UK CPI surprised once again to the upside and the latest Flash PMIs, although mixed, showed strength and persistent inflationary pressures. Recently, the BoE’s quarterly inflation expectations survey also jumped to a two-year high, which could support the hawks’ view that higher inflation expectations are transmitting into higher wage bargaining and keeping inflation higher for longer.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD is probing above the key 1.3589 resistance as the USD remains skewed to the downside heading into the FOMC decision. The buyers will likely increase the bullish bets into the 1.3789 level next with a defined risk below the 1.3589 level. The sellers, on the other hand, will want to see the price falling back below the 1.3589 level to pile in for a drop into the 1.3368 support.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we now have an upward trendline defining the bullish momentum. In case we get a pullback into the trendline, we can expect the buyers to lean on it with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.3368 support.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the buyers will start piling in around these levels with a defined risk below the 1.3589 level or look for a bounce around the trendline to keep pushing into new highs. The sellers, on the other hand, will want to see the price falling back below the 1.3589 level to position for a drop into the 1.3368 support and increase the bearish bets on a break below the trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we get the UK Employment and US Retail Sales data. On Wednesday, we have the UK CPI and the FOMC policy announcement. On Thursday, we have the BoE rate decision and the lates US Jobless Claims figures. On Friday, we conclude the week with the UK Retail Sales report. Keep also an eye on WSJ’s Timiraos as he could signal a 50 bps cut in his Fed preview.
