GBP/USD Nears 1.3600 as USD Weakness and Risk-On Sentiment Boost Gains

The British Pound extended its rally on Wednesday, climbing toward the 1.3600 mark and trading at multi-week highs. The move comes as broad US Dollar weakness and an improved global risk tone support the pair’s upside momentum.

GBP/USD Technical Outlook

On the 4-hour chart, the Relative Strength Index (RSI) remains near 80, highlighting overbought conditions that could slow momentum in the short term.

• Resistance Levels:
  • 1.3590–1.3600: Key static and psychological barrier.
  • 1.3640: 78.6% Fibonacci retracement of the recent downtrend.
  • 1.3700: Major round number and previous resistance zone.
• Support Levels:
  • 1.3540: 61.8% Fibonacci retracement.
  • 1.3500: Psychological level.
  • 1.3460: 50% Fibonacci retracement and 200-period SMA support.

Fundamental Drivers – US Data and Fed Expectations

GBP/USD’s bullish push on Tuesday was fueled by selling pressure on the US Dollar after softer inflation data reinforced expectations of a dovish Federal Reserve stance for the remainder of the year.

US CPI data for July showed annual inflation steady at 2.7% versus the forecast of 2.8%. Core CPI rose to 3.1% YoY, slightly above expectations, while monthly readings matched market estimates.

The softer CPI prompted markets to raise expectations of a total of 75 bps in Fed rate cuts for 2025, with CME FedWatch data showing odds climbing to over 53% from 43% pre-release. Wall Street’s rally further weakened the USD, boosting GBP/USD.

UK Economic Data in Focus

UK GDP data came in mixed:

• GDP QoQ: 0.1% (vs. 0.7% prior)
• GDP YoY: 1.0% (vs. 1.3% prior)
• Industrial and manufacturing production rebounded modestly, offering some support to Sterling despite the slowdown in growth momentum.

Market Sentiment and Outlook

Risk appetite remains firm, with US stock index futures and the FTSE 100 both up around 0.2% in early European trade. If this positive sentiment extends through the US session, the USD could struggle to find demand, allowing GBP/USD to challenge the 1.3600 resistance and potentially aim for 1.3640 in the short term.

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