British Pound (GBP/USD) Analysis and Charts

• GBP/USD continues to gain
• Stronger UK growth and increased bets on lower US rates have done the trick
• Bets on Bank of England action have been pared

The British Pound remains bid and close to its highs for the year against the United States Dollar, thanks to support from both sides of the currency pair.

On the ‘GBP’ side, growth data have surprised to the upside. The United Kingdom’s Gross Domestic Product expanded by 0.4% in May. Growth flatlined in April but appears to be accelerating again out of the recession which clouded the end of 2023.

This surprise has seen bets reduced on an interest rate reduction in August. Before the numbers this was seen as highly likely, now the odds are down to about 50./50.

Moreover, after years of churn at the top of government, the UK is starting to look like a haven of political stability compared with its most obvious national peers. Its new government was installed this month with a massive electoral majority, adding to the Pound’s allure.

The US Dollar, meanwhile, has been knocked by more docile inflation numbers. These have kept alive the possibility that the Federal Reserve will at last start to reduce its interest rates in September with markets now betting on two quarter-point reductions before the end of the year.

The next major UK data event will be official inflation figures. That’s sure to be a big one for traders but it’s not due until July 17. The interim will likely see Dollar action setting the pace.

GBP/USD Technical Analysis

GBP/USD Daily Chart Compiled Using TradingView

GBP/USD has clearly surged in July, with the daily candles a forest of green since the month began,

At this point the only near-term question is how far the rally can run without starting to look overstretched.

The broad uptrend channel from the lows of late April has been quite well respected, but its upper limit has survived numerous tests and is in any case quite a long way above the current market even after this rapid rise. It offers resistance at 1.29971. That’s unlikely to be tested soon. For now, bulls are holding on close to the year’s peak and it will be interesting to see if they can hold the market there into next week’s trading.

If they can’t, June 12’s peak of 1.28539 may beckon, ahead of retracement support at 1.27484.

The latter would represent a major reversal but, given that the market is nearly five full cents above its 200-day moving average, shouldn’t be ruled out.

Unsurprisingly the Pound is starting to look a little overbought at current levels, with GBP/USD’s Relative Strength Indicator at 72.6 on Friday.

--By David Cottle for DailyFX

https://www.dailyfx.com/news/british-pound-holds-at-24-highs-vs-usd-but-starts-to-look-stretched-20240712-20240712.html