

Market Analysis
The Pound Sterling (GBP) exhibited mixed performance across its major trading pairs on Monday, despite recent positive economic data from the UK. The currency gained against the US Dollar (USD), remained steady against the Euro (EUR), and declined versus the Japanese Yen (JPY). The recent movements in GBP seem to be influenced more by the fluctuations in its counterpart currencies rather than domestic news or economic indicators.
Pound Sterling Shows Resilience Amid Positive Economic Data
At the start of the week, the Pound Sterling is trading with mixed results. Recent evaluations of the UK economy have been largely optimistic, with some analysts describing it as achieving a “Goldilocks” condition—balanced between extremes. Headline inflation is currently near the Bank of England’s (BoE) 2.0% target, and services inflation, which has been persistently high, decreased to 5.2% in July from 5.7% previously, moving closer to its long-term average of around 3.5%.
UK Retail Sales data for July indicated a recovery, rising by 0.5% following a decline of 0.9% in June. Additionally, the unemployment rate dropped to 4.2% in the second quarter from 4.4% in the first, while Gross Domestic Product (GDP) increased by 0.9% from 0.3% over the same period.
The combination of lower headline inflation and a reduction in services inflation prompted the BoE to lower interest rates at its August meeting, cutting them to 5.00% from 5.25%. Typically, lower interest rates can weaken GBP by reducing foreign capital inflows. Current market indicators suggest a slightly less than 50% chance of another 0.25% rate cut in September, with economists at Capital Economics forecasting two additional 0.25% cuts by year-end.
GBP Gains Against USD, Weakens Against JPY
The Pound has risen by 0.2% against the US Dollar on Monday, trading in the 1.2950 range, building on gains from the previous week. This rise is largely attributed to broad-based USD weakness, following remarks from Austan Goolsbee, President of the Federal Reserve Bank of Chicago. Goolsbee highlighted emerging warning signs in the US economy, such as rising credit card delinquencies, which have reignited recession fears and weighed on the dollar.
In the EUR/GBP pair, the currencies are fluctuating with minimal changes, as there is little new data or information to drive significant movement.
Conversely, the Pound has fallen against the Japanese Yen (JPY) after Japan reported a stronger-than-expected rebound in Machinery Orders, which rose by 2.1% month-on-month in June, following a 3.2% decline in the previous month. This data also pushed Japanese 10-year Government Bond yields up to 0.9%, bolstering the Yen, which is closely linked to these yields. The Yen was already on an upward trend after Japan's Q2 GDP exceeded expectations, growing by 0.8% quarter-on-quarter, reversing a 0.6% contraction in Q1, and surpassing the anticipated 0.5% growth.
The Bank of Japan (BoJ) surprised markets in July by raising interest rates from the previous -0.10% band to 0.25%, responding to rising inflationary pressures. This decision followed successful spring wage negotiations that increased workers’ disposable income, with further rate hikes expected before the end of the year.
Technical Analysis: GBP/USD Maintains Short-Term Uptrend
GBP/USD continues to show a bullish short-term trend, characterized by a series of higher highs and higher lows on the 4-hour chart. This suggests the pair is likely to continue its upward movement, with the next target at 1.3042, corresponding to the high from July 17.
However, the Relative Strength Index (RSI) has entered the overbought territory, signaling a growing risk of a potential pullback. Should a correction occur, the former high at 1.2940 could act as a support level, with the psychological level of 1.2900 serving as another potential support in case of a further decline.
In the medium and long term, the GBP/USD trend remains unclear, with price action largely confined to a range between 1.2300 and 1.3042 since November 2023.
Paraphrasing text from "FX Street" all rights reserved by the original author.