GBP/USD pair is currently positioned at approximately 1.3398, just under its intraday high of 1.3422, indicating a degree of caution near significant support levels. The pair has fluctuated between 1.32 and 1.36 for the majority of the quarter, with the 1.34 level becoming a critical point of contention between optimistic recovery expectations and a resurgence of dollar strength. The recent correction comes after a five-week rally that had pushed sterling above 1.36, but renewed dollar buying and dovish remarks from Bank of England officials have led to a technical reversal. The U.S. Dollar Index experienced a rebound of 0.32%, reaching 98.60. This movement has effectively reversed a portion of last week’s decline and has limited the upward momentum of the sterling. This action indicates a resurgence in safe-haven demand as investors assess the persistent political risks in Europe and the ongoing U.S. government shutdown, which has now entered its second week. The dollar’s strength persists in impacting the G10 complex, with the pound — previously outperforming currencies like the CAD, NZD, and AUD — now entering a phase of consolidation as traders reevaluate rate expectations.
Momentum indicators illustrate this cooling: the RSI at 43.08 is positioned below neutral, indicating diminishing bullish energy, while the 15-day moving average (1.3456) has dipped below the 20-day (1.3492), suggesting a short-term bearish trend. The price action below 1.35 has breached the rising channel that characterized the August rally, indicating that the pair may shift towards a sideways or downward trend unless new catalysts arise. The Bank of England continues to be the primary influence on medium-term fluctuations in sterling. Current market assessments indicate an 82% likelihood of an additional rate cut occurring before the end of the year, following a decline in core inflation to 2.1%, marking its lowest point since mid-2021. Huw Pill recently indicated that “policy tightening has done its job,” suggesting a potential halt in rate increases while cautioning that high wage growth continues to pose a risk to inflation stability. This prudent approach stands in stark contrast to the Federal Reserve, where decision-makers uphold a neutral-to-hawkish stance. The FOMC minutes from the September 16–17 meeting, set to be released later today, are anticipated to highlight internal disagreements regarding the next rate adjustment — however, sustained caution in easing expectations may provide additional support for the dollar. The Fed funds rate continues to range between 4.75% and 5.00%, maintaining an interest rate differential that supports the dollar, thereby constraining the potential for sustained appreciation of sterling.
Currently, GBP/USD is revisiting a clearly established horizontal support zone ranging from 1.3350 to 1.3400, an area that has prompted several rebounds since late August. Should this support falter, traders expect a more pronounced decline towards 1.3325, marking the lower limit of the pair’s three-month range. On the upside, resistance is positioned at 1.3500, which corresponds to the cluster of moving averages, followed by the significant psychological level at 1.3600. Momentum oscillators indicate a neutral to slightly bearish stance, implying restricted potential for an immediate rebound. The MACD histogram has stabilized around the zero line, and the RSI is still below 50, suggesting a deficiency in buyer confidence. Current short-term sentiment indicates a preference for sell-on-rally strategies until there is a consistent movement above 1.3550.
The overall market narrative indicates a preference for a more cautious approach. U.S. Treasury yields are currently holding steady around 4.25%, while risk appetite has diminished following the FOMC’s September minutes, which highlighted worries about financial stability risks associated with premature rate cuts. Market participants are analyzing the U.K. manufacturing PMI, reported at 49.1, indicating continued contraction, while the services PMI has slightly decreased to 50.4, remaining just above the threshold for expansion. The combined insights from these readings indicate that the U.K. economy continues to exhibit fragility, thereby limiting the Bank of England’s ability to uphold a hawkish position. In the meantime, hedge fund positioning indicates a decrease in GBP net longs by 18% week-over-week, marking their most significant reduction since June. The CFTC data reveals that leveraged funds are starting to shift into dollar positions in anticipation of the Fed minutes, supporting the perspective that the pound has constrained near-term potential for appreciation.