GBP/USD Eyes Breakout as Pound Rises Despite BoE Cut Bets and Fiscal Woes
Thursday saw the British pound hold firm against the US dollar, trading near 1.3569 after a big bounce from last week’s 1.3367 low.
Quick overview
- The British pound remained stable against the US dollar, trading near 1.3569 after recovering from last week's low of 1.3367.
- UK government borrowing figures revealed a significant rise, prompting discussions of potential tax hikes, yet the pound's performance remained resilient.
- Mixed PMI data showed steady services performance but a contraction in manufacturing, influencing market sentiment ahead of the Bank of England's upcoming commentary.
- GBP/USD is testing key resistance levels, with potential for further movement depending on upcoming economic data and technical indicators.
Thursday saw the British pound hold firm against the US dollar, trading near 1.3569 after a big bounce from last week’s 1.3367 low. This despite renewed concerns over UK public finances and a dovish shift in expectations for the Bank of England (BoE).
The UK government’s borrowing figures released Tuesday showed a worrying rise – the second highest June reading since 1993 – driven by high interest costs due to inflation. And talk of tax hikes in the Autumn Statement is back on the table.
But the Pound shrugged it off. Much of the bad news is priced in and markets are waiting for a 25 basis point BoE rate cut in August. Big players like Goldman Sachs and Bank of America are now expecting easing but sentiment is surprisingly steady as the UK economy shows signs of life.
GBP Data Mixed
This morning’s flash PMI figures from the UK showed a slight divergence in sector performance. Services PMI was steady at 52.8, Manufacturing PMI dipped to 47.9, still in contraction. Higher social security costs may be weighing on employment but the steady services reading supported confidence.
Now attention is turning to Friday’s BoE commentary and growth figures. Will the BoE be more dovish or pause, especially with fiscal strain and soft demand?
GBP/USD Hits Technical Barrier at 1.3588
From a technical view, GBP/USD has risen 200 pips from the July lows and is now testing the descending trendline resistance from the June high. The pair is trading just below 1.3588, a level that is both horizontal and dynamic resistance.
- 50-SMA on the 4H chart at 1.3459 is strong support
- RSI is 68.90, overbought
- Price has made higher lows, bullish
If bulls can break above 1.3588-1.3600, the next level of resistance is 1.3670 then 1.3722. But if price stalls and prints bearish candles near the trendline, a pullback to 1.3523 or 1.3459 could happen before the next leg up.
Summary
GBP/USD is at the wire, technical and dollar driven. US PMIs and new home sales out today, be ready for action.
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