GBP/USD Eyes 1.3836 as Traders Price 74% Chance of Fed Rate Cut by Sept

Quick overview

The GBP/USD pair continued to push higher during Tuesday’s European session, up to 1.3780 as the US dollar weakened. Expectations of a rate cut from the Federal Reserve have added to the dollar’s woes. Market odds are 74% for a September cut, 26% for July.

A surprise drop in US PCE consumer spending data has fuelled these expectations. Coupled with dovish Fed rhetoric, the data has reinforced the market’s dovish bias. The US Dollar Index (DXY) fell to its lowest since February 2022, supporting the GBP/USD uptrend.

Investor sentiment is shifting towards riskier assets and the pound is a clear beneficiary. The positive risk appetite driven by easier monetary conditions has lifted cable in recent sessions. Even with traders cautious ahead of the data, the trend is still up.

Deficit Worries Hit Dollar

Adding to the dollar’s woes, investors reacted to the Senate’s procedural vote on Trump’s $3.3 trillion “One Big Beautiful Bill”. The proposal raises long term fiscal concerns and has weighed on the dollar by reigniting debt worries. The plan’s deficit impact over 10 years has created doubts over fiscal sustainability and has dented the dollar.

While the bill is supposed to stimulate growth and ease consumer pressure, markets are uneasy about how it will be financed. Combined with ongoing trade policy uncertainty, these concerns have reduced demand for the US dollar as a safe haven.

The UK economy has shown relative resilience. Not immune to global headwinds, the UK economy has performed well and the BoE has been cautious. The pound’s tone is also reflected in broader European markets where inflation is improving and monetary conditions are stable.

GBP/USD Technicals Point to More Upside

From a technical perspective, GBP/USD is consolidating at 1.3735 after being rejected at 1.3777. The pair is above the 50 period EMA at 1.3700 and respecting the rising trendline from the June 21 low.

A bearish engulfing candle has capped short term upside but the bigger picture is still bullish. MACD is flattening but no reversal yet. As long as 1.3722 holds as support, short term is bullish.

Trade:

• Bullish: Above 1.3777 on close
• Stop: Below 1.3700
• Target 1: 1.3806
• Target 2: 1.3836
• Bearish: Below 1.3700
• Stop: Above 1.3777
• Target 1: 1.3685
• Target 2: 1.3651

Powell and Bailey speeches at the ECB’s Sintra Forum and US ISM Manufacturing PMI and JOLTS job openings data this week could bring some volatility. But with dovish Fed expectations, deficit worries and stable UK fundamentals, short term is still bullish for cable.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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