The GBP/USD currency pair, a widely traded forex instrument, pulled back from its recent highs as US dollar strength re-emerged. This reversal followed the US President’s extension of a tariff deadline, which led to a modest relief rally in the US Dollar Index (DXY).
The pound-dollar exchange rate dropped to 1.3600, down from the year-to-date high of 1.3780, signaling that bullish momentum may be stalling. In this article, Gradiopexo breaks down the topic with clarity and precision.
US Dollar Index Stages a Relief Rally
The US dollar’s comeback was triggered by a geopolitical development that caught many traders off guard. The US President announced that he would revert tariffs to his previously proposed April levels for countries that have not yet struck a trade agreement with the United States. This announcement supported the greenback, which has been under pressure amid slowing inflation, soft jobs data, and an increasingly dovish Federal Reserve stance.
In contrast, the UK was somewhat insulated from this tariff development. The United Kingdom had already negotiated a deal with the US in May, securing exemptions for many of its critical exports, including aerospace components, pharmaceuticals, and automotive parts. The US has also signed similar agreements with China and Vietnam, further reducing trade tensions globally.
However, despite the UK’s favorable trade position, the British pound failed to hold its recent gains. The rally in the DXY (which measures the dollar’s performance against a basket of peers) exerted enough pressure to force a retracement in the GBP/USD pair.
Market Awaits UK GDP and US Fed Minutes
Traders are now turning their focus to upcoming economic data that could inject fresh volatility into GBP/USD. On Friday, the UK’s GDP figures for May will be released. Economists forecast a modest 0.1% growth after a 0.3% contraction in April.
If confirmed, this would mark a tentative rebound in activity but still leave questions around the sustainability of the recovery.
Alongside GDP, the UK will also publish its industrial and manufacturing production reports. These numbers will be closely watched to gauge the health of the production sector, which has shown signs of strain due to high input costs and weaker global demand.
Across the Atlantic, the focus will shift to the Federal Open Market Committee (FOMC) minutes, scheduled for release on Wednesday. These minutes will offer more context on the Federal Reserve’s decision to hold interest rates steady during the June meeting.
While the FOMC’s tone will be examined for clues about the rate path, many analysts believe the impact may be muted due to the recent nonfarm payrolls (NFP) report.
The June NFP data showed that the US economy added 147,000 jobs, slightly below expectations, while the unemployment rate dipped to 4.1%. The mixed nature of the labor data reinforced views that the Fed is nearing the end of its tightening cycle, but not yet prepared to signal rate cuts.
GBP/USD Technical Analysis: Momentum Shifts Bearish
From a technical perspective, the daily chart of GBP/USD reveals a potential trend reversal. The pair has been trading within an ascending channel over the past few months, showing consistent bullish momentum. However, price action recently fell below the upper boundary of the channel, a sign that buying pressure may be fading.
Importantly, the pair remains above its 50-day and 100-day Exponential Moving Averages (EMAs), indicating that medium-term trend support is still intact. But this support could be tested soon if selling pressure intensifies.
Both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators have started to show bearish divergence, which typically precedes price corrections. The RSI has dropped from overbought levels, while the MACD histogram is trending lower, suggesting waning momentum.
If the current correction deepens, the next key support level to watch will be the 50-day EMA, located around 1.3470. A decisive move below this area could trigger a steeper pullback, possibly toward the lower end of the ascending channel.
On the flip side, a break above 1.3784, the recent high and channel resistance, would invalidate the bearish outlook and signal a renewed bullish breakout.
Conclusion: Caution Ahead for Sterling Bulls
The GBP/USD pair is at a critical juncture. While fundamental factors like reduced tariff risks and modest UK growth support the pound, technical indicators and a resurgent US dollar point to possible short-term weakness. With several key data releases on the horizon, including UK GDP and Fed minutes, traders should expect heightened volatility and potentially choppy price action.
For now, the bullish trend in GBP/USD remains technically alive but increasingly fragile. Sterling bulls must defend support near 1.3470, while US dollar bulls will look for confirmation that the recent bounce in the DXY has legs.
