The GBP/USD currency pair is currently trading in a tight range between 1.3520 and 1.3540, following a dip to 1.3493. Market participants are particularly focused on the support levels around 1.3470 to 1.3480. These levels have become crucial as traders anticipate forthcoming U.S. Consumer Price Index (CPI) data and the Bank of England’s (BoE) policy decisions. Despite a rebound from the earlier sell-off in September due to UK fiscal concerns, the pound remains under pressure, unable to break through the resistance levels of 1.3595 to 1.3620, creating a scenario of short-term consolidation.
On the U.S. side, inflation data from August shows a month-on-month increase of 0.4%, surpassing the anticipated 0.3%. The headline inflation rate remains stable at 2.9% year-over-year, while the core CPI stands at 3.1%. However, the market is pricing in a 94% chance of a 25-basis-point rate cut by the Federal Reserve during their next meeting. This expectation is bolstered by recent weaker employment data and a 0.1% decline in Producer Price Index (PPI). Although traders see little likelihood of a more aggressive 50 basis point reduction, expectations for multiple cuts stretching into 2025 remain prevalent, with about 70 basis points of easing forecasted by year-end. This scenario has weakened the dollar’s broader support, allowing the pound to stabilize above the 1.35 mark despite mixed inflation signals.
The upcoming Bank of England meeting, scheduled for September 18, is expected to maintain the interest rate at 4.00% following a series of five earlier cuts this year. The UK economy shows signs of weakening momentum, with July’s GDP anticipated to stagnate after a 0.4% growth in June. Additionally, the housing market is under pressure, as reflected by the RICS Housing Price Balance declining to -19% in August, marking its weakest point in nearly two years. While persistent wage growth in the UK continues to sustain inflationary pressures, slowing economic activity suggests a likely shift in policy towards cuts in 2025. This divergence in monetary policy between the Fed’s imminent easing and the BoE’s caution provides a modest boost for GBP/USD.
From a technical perspective, the GBP/USD is forming a symmetrical triangle on the charts, trading above the 50-day moving average. Immediate resistance is noted at the 1.3562 to 1.3595 range, where a breakout could pave the way toward 1.3750, which was July’s high. Conversely, any decisive break below 1.3520 could expose the 200-day simple moving average near 1.3477 and push prices further down to 1.3446. The Relative Strength Index (RSI) stands at 44, indicating a potential softening in momentum as traders exhibit caution and are likely to lean towards range-bound strategies until a clear directional signal emerges.
Market sentiment has shifted positively for the pound, reflecting not only expectations of Fed rate cuts but also a relative strength in UK assets. Options markets demonstrate an increasingly favorable outlook for GBP risk, while speculative positioning has transitioned to a more neutral stance following weeks of bearish sentiment. The distinct divergence between U.S. monetary easing and the BoE’s hesitance is aiding the pound in maintaining its base near the 1.35 level. However, a stronger-than-expected CPI figure from the U.S. could challenge this stability.
In summary, the GBP/USD pair is navigating a tight range between 1.3480 support and 1.3595 resistance as it waits for critical catalysts from the U.S. CPI release and central bank meetings. A dovish stance from the Fed coupled with a stable BoE would likely support GBP/USD’s movement toward the 1.3620 to 1.3750 range, whereas unexpected hot inflation or poor UK GDP reports could drag the pair back toward 1.3470, with potential exposure to 1.3430. Overall, the outlook appears cautiously bullish, with buying interest defending the 1.35 level and expectations of Fed easing outweighing short-term economic weakening in the UK.
