The GBP/USD exchange rate staged a significant rebound on Friday, following a relatively dovish statement from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium in Wyoming. The pair climbed sharply from a recent low of 1.3387 to reach 1.3548, demonstrating heightened volatility in the Forex market amid renewed monetary policy speculation. Rachael Glover, a PrimeberGroup broker, presents the subject in a structured and informative way for readers.
Powell Statement Points to Fed and BoE Divergence
Jerome Powell’s speech marked a pivot in the Federal Reserve’s monetary policy stance, signaling a shift in focus from inflation targeting toward safeguarding the labor market. Powell highlighted concerns over recent employment data, noting that job creation in July was only 73,000, a figure that may be subject to downward revision by the Bureau of Labor Statistics (BLS). The unemployment rate increased to 4.2%, while wage growth remained constrained, indicating slack in the labor market.
This labor market deterioration coincides with increased tariff-related pressures, particularly from the US’s recent tariffs, which have elevated the average US tariff rate to approximately 18%, higher than in most developed economies. Powell’s focus on employment over inflation contrasts with the Bank of England’s (BoE) policy stance, creating a notable divergence in the monetary policy outlook between the Fed and BoE.
Recent inflation data adds context to this divergence. In the United States, the headline Consumer Price Index (CPI) increased to 2.7% in July, while core CPI, which excludes volatile food and energy prices, rose to 3.1%. Conversely, in the UK, the Office of National Statistics (ONS) reported that core and headline consumer inflation climbed to 3.8%, and the Retail Price Index (RPI) surged to 4.8%, underpinning the BoE’s likely decision to maintain interest rates in the near term.
GBP/USD Technical Analysis: Inverse Head-and-Shoulders
From a technical analysis perspective, the GBP/USD pair demonstrates several bullish indicators. On the daily timeframe chart, the pair rebounded to a high of 1.3540 following Powell’s speech, forming a bullish engulfing candlestick pattern. This pattern occurs when a large bullish candle completely covers the preceding smaller bullish candle, signaling strong buyer momentum and potential trend reversal.
More significantly, the pair has developed an inverse head-and-shoulders formation, a highly bullish reversal pattern frequently used by Forex traders to anticipate trend continuation. The left shoulder formed near 1.3387, followed by the head at the same level, and a right shoulder has now emerged as the price rebounds. The neckline, a critical resistance level, sits at 1.3587. A break above the neckline would likely confirm the bullish reversal, suggesting further gains toward the next key level at 1.3700.
In addition, the pair remains comfortably above the 50-day and 25-day Exponential Moving Averages (EMA), reinforcing the uptrend. The EMA alignment is often a reliable indicator for trend strength, with the shorter EMA (25-day) positioned above the longer EMA (50-day), signaling strong buying pressure.
Potential Market Drivers
The GBP/USD pair is highly sensitive to monetary policy news, particularly regarding interest rate expectations and inflation outlooks. The recent dovish tone from the Fed increases the likelihood of a rate cut, while the BoE is expected to keep rates steady, widening the interest rate differential between the US Dollar and British Pound. A wider differential often supports GBP appreciation against the USD.
Forex traders should also monitor economic releases such as UK retail sales, CPI updates, and US employment reports, as these can trigger intraday volatility and affect the technical patterns forming on the daily and intraday charts.
Trading Implications
The current technical setup suggests that GBP/USD bulls may target the 1.3587 neckline breakout, with potential upside toward 1.3700. Conservative traders may wait for a confirmed close above the neckline, while more aggressive positions might enter near support levels identified at the inverse head-and-shoulders troughs around 1.3387.
In addition, the presence of the bullish engulfing pattern reinforces the short-term momentum, while the EMA support indicates that dips may present favorable buying opportunities. Traders should, however, remain cautious of unexpected news events, particularly tariff announcements or central bank speeches, which can disrupt the technical setup.
Conclusion
The GBP/USD Forex signal indicates a potential bullish reversal, underpinned by an inverse head-and-shoulders formation and a bullish engulfing candlestick pattern. Powell’s dovish comments on the labor market, combined with Fed-BoE divergence, provide fundamental support for the pair’s upward trajectory. Technical indicators, including EMA alignment and pattern formations, suggest that a break above 1.3587 could open the path toward 1.3700, making this a key level for Forex traders to watch in the coming sessions.
Overall, the combination of fundamental drivers and technical signals makes GBP/USD a highly tradable pair in the current market environment, offering opportunities for trend-following strategies and reversal trades alike.
