Analysts at AchievementsAI take a closer look at the latest GBP/USD technical picture, as sterling extends its recovery following softer than expected US inflation data and mixed UK economic releases.
Pound Registers Modest Gains As Dollar Comes Under Pressure
Sterling edged higher against the dollar on Thursday after US producer price figures landed softer than or roughly matched forecasts, adding to the sense that price pressures continue cooling in the world’s largest economy. At the time of writing, GBP/USD trades at 1.3503, up 0.06% on the day.
Earlier in the session, sterling clawed back initial losses against the dollar, flattening around 1.3495 during European trading hours. The pair bounced back as the dollar came under pressure, with investors prioritizing easing fears around Federal Reserve interest rate hikes over ongoing tensions in the Middle East.
UK GDP Beats Expectations But Factory Output Disappoints
Data released by the UK National Statistics Office showed the economy grew at a steady 0.4% pace in the second quarter, matching expectations but reflecting a moderate slowdown from the 0.6% growth recorded in the previous quarter. Monthly GDP accelerated 0.3% in June, outperforming expectations of a flat reading.
Factory data told a different story, though, tempering the broader optimism as elevated energy costs tied to the Middle East conflict continued to bite.
Output at UK factories shrank 0.2% in June, missing forecasts for a 0.1% gain, while the prior month’s figure was revised sharply lower, now showing a 0.7% drop instead of the -0.5% initially reported. Manufacturers fared even worse, with production sliding 0.5%, more than double the 0.2% decline analysts had penciled in.
US Dollar Stalls As Inflation Pressures Ease
The dollar has struggled to build momentum lately, held back by a mix of factors even as ongoing uncertainty in the Middle East offers it some baseline support. Wednesday’s July CPI print pointed to cooling price pressures, and paired with last week’s weaker jobs report, it has pushed traders to dial back their bets on a Fed rate increase come September.
Futures markets are now pricing in a 40% probability of a quarter point rate hike next month, down sharply from 54% just a week earlier, according to the CME Group’s FedWatch Tool. This meaningful shift in rate expectations has played a central role in keeping the dollar on the defensive across major currency pairs, including against sterling.
Scotiabank Flags Key Technical Levels
Scotiabank’s team sees the pound’s recent behavior as driven mainly by shifting risk appetite rather than hard data, pointing to how closely GBP has been tracking broader risk sentiment gauges lately. They also flag a modest improvement in yield spread dynamics for sterling, hinting at early signs of stabilization after the currency’s soft patch in mid to late July.
Technically, the bank sees room for the pair to run into fresh selling pressure as it nears 1.3600 and the mid 1.36s, an area that capped gains back in May, while buyers are expected to defend the mid to lower 1.34s on any pullback. Their working range for now sits between roughly 1.3450 and 1.3550, pending fresh UK economic data.
What This Means For Near Term Direction
The combination of easing US rate hike expectations and a still uncertain UK growth picture leaves GBP/USD navigating a relatively narrow band in the sessions ahead. With factory output data disappointing even as headline GDP beat forecasts, the pound’s trajectory will likely continue to hinge more heavily on dollar dynamics than domestic UK catalysts in the immediate term.
Traders should watch closely how price behaves around the 1.3550 upper boundary of Scotiabank’s projected range, as a decisive break above this level, followed by a test of 1.3600, would suggest sterling is gaining more independent momentum rather than simply benefiting from broad dollar weakness.
Conclusion
GBP/USD finds itself in a cautiously constructive position, supported primarily by softer US inflation data and diminishing Fed rate hike expectations rather than any decisive improvement in UK fundamentals.
With Scotiabank projecting a near term range between 1.3450 and 1.3550, and resistance building toward 1.3600, the pair’s next meaningful move will likely depend on incoming UK data alongside further clarity on the Federal Reserve’s policy path.
Traders following GBP/USD strategies should monitor this range closely, as a confirmed break in either direction would signal whether the current sentiment driven rally has enough underlying strength to establish a more sustained trend.