The US dollar faced renewed pressure last Thursday after an in-line Consumer Price Index (CPI) report and the unexpected rise in initial jobless claims. The jobless claims surged to a new cycle high, marking the highest level since 2021. Further analysis suggested that this spike may have been influenced by a significant increase in claims from Texas, potentially reflecting a temporary anomaly. Despite this context, the data contributed to the narrative of a weakening labor market, solidifying expectations for up to three rate cuts by the year’s end.
When examining the broader context, the US dollar has remained largely rangebound. Although dovish sentiment surrounding the Federal Reserve has weighed on the currency, it’s possible that bearish positioning may be overstretched, indicating a peak in dovish pricing. If forthcoming rate cuts lead to stronger economic activity in the coming months, expectations for further cuts in 2026 might be recalibrated, potentially bolstering the dollar. However, the prevailing trend still leans downward, necessitating robust economic data to reverse this trajectory. With the Federal Open Market Committee’s (FOMC) rate decision approaching on Wednesday, analysts anticipate a 25 basis point cut along with guidance hinting at two additional cuts by year-end.
Turning to the British pound, the Bank of England (BoE) is expected to maintain its current bank rate during its upcoming decision on Thursday, with a 7-2 voting split, as members Dhingra and Taylor are likely to advocate for a rate cut. Following a recent hawkish decision, subsequent economic data has largely exceeded expectations. Notably, the UK CPI consistently surprised to the upside, and the latest Flash Purchasing Managers’ Index (PMIs) data, though mixed, indicated ongoing strength and inflationary pressures. The BoE’s quarterly inflation expectations survey, which recently escalated to a two-year high, adds weight to the argument that heightened inflation expectations are feeding into stronger wage negotiations, thereby sustaining inflation.
From a technical analysis standpoint, the GBPUSD pair is currently probing above the significant resistance level of 1.3589, as the dollar trends downward ahead of the FOMC decision. Bullish sentiment could drive the pair towards the next target of 1.3789, with a clear risk management strategy positioned below 1.3589. Conversely, sellers will be looking for a reversal beneath this threshold to initiate a decline toward the support level at 1.3368.
Looking at a four-hour chart, an upward trendline appears to define the current bullish momentum. Should a pullback occur towards this trendline, buyers are expected to lean into that support with a defined risk. Sellers are aiming for a decisive break lower to solidify bearish positions toward the 1.3368 support.
On the hourly chart, the sentiment remains consistent with buyers anticipated to consolidate around the 1.3589 level, while sellers prepare to re-enter if prices fall below this resistance level.
Several key economic indicators are slated for release in the coming days. On Tuesday, UK employment and US retail sales data will be released. The following day brings the UK CPI and the FOMC policy announcement. Thursday will see the BoE’s rate decision along with updated US jobless claims figures, culminating in the UK retail sales report on Friday. Additionally, market participants are advised to watch for insights from the Wall Street Journal’s Timiraos, who may indicate a potential 50 basis point cut in his preview of the Fed’s actions.
