- GBP/USD struggles as weak UK jobs data fuels August rate cut bets.
- US CPI and 10-year auction hold key for dollar direction today.
- Sino-US talks offer little breakthrough, keeping dollar and pound range-bound.
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The GBP/USD is in focus with US-China talks ongoing, US CPI data, and the UK’s spending review both to come. Much of the focus has been on Sino-American trade talks this week, which have delivered little more than a pledge to reopen the tap for sensitive goods such as rare earths, and even that awaits the blessing of Presidents Trump and Xi.
In other words, there has been some progress – yes, but hardly the stuff of diplomatic headlines. The focus will turn to the upcoming US CPI report later today, and in the UK, we have a spending review, which, truth be told, is unlikely to be a game-changer. All told, the GBP/USD is starting to look a little vulnerable as US Dollar is attempting to make a comeback.
US-China Talks Keeping Dollar Bears at Bay Ahead of CPI
So far this week, the US dollar index has ambled rather than advanced. Reports of a fledgling “framework” sound constructive, yet Beijing’s reluctance to shrink its surplus hands Washington’s hawks plenty of ammunition to stall meaningful agreement. With traders unsure how far any London accord will reach, traders are largely sitting on their hands in the FX markets. That could soon change, though.
That leaves markets peering intently at today’s US CPI data and the 10-year auction later. These events could move the US dollar sharply. Economists are looking for a 0.2% month-on-month rise in headline CPI, with the core version seen rising 0.3% on the month.
UK Spending Review Unlikely to Move the Needle
In the UK, Chancellor Rachel Reeves will deliver her Spending Review today, though its key message is already clear: the public purse is stretched. Day-to-day departmental budgets will rise by just 1% a year in real terms over the next three fiscal years — a figure outlined back in March.
With health, defence, and education set to claim most of the limited growth, other departments may face real-terms cuts. While the Treasury could be forced to revisit some budgets down the line to honour manifesto pledges, that won’t happen now.
This isn’t a Budget, and without an OBR forecast, major tax or spending decisions are off the table for now. So, we probably won’t see much of a reach in UK assets, including the pound.
UK Labour Market Weakness Undermines Pound
After an initial tumble in the GBP USD exchange rate to just shy of 1.3450 in response to yesterday’s disappointing UK wages and jobs data, the pound staged a spirited recovery, before fading into the close to ensure a red close on the day as the US dollar found its footing across the board.
We saw the Average Earnings Index come in at 5.3% on a 3m/y basis, down from 5.6% recorded previously. The jobless claims data showed a 33.1K jump when only a small rise was expected.
The underwhelming UK labour market data has bolstered expectations for a Bank of England rate cut in August, with a second move potentially on the cards in November, should incoming data allow. With rate cut probabilities on the rise, the pound’s four-month rally could be running out of steam.
For now, June remains in positive territory for GBP/USD, which raises the prospect of a fifth consecutive monthly gain. But that run may be living on borrowed time. Any further deterioration in UK data—or even a modest pick-up in risk appetite favouring the dollar—could well tip the scales back in favour of the greenback.
GBP/USD Technical Analysis and Trade Ideas
From a technical standpoint, the GBP/USD is beginning to look somewhat top-heavy. The key support zone between 1.3430 and 1.3470 (shaded in grey on the chart) has held up thus far, but a clean break below this region would mark a bearish shift in sentiment. Should that occur, a retreat towards the low 1.30s could swiftly come back into play.
The next support area beath the 1.3430-1.3470 region is around 1.3320, marking the breakout area from the prior consolidation zone. Then the 2025 bullish trend line will come into focus net around the 1.3300-1.3330 area. The 12th May low comes in at 1.3140, beneath which there is not much further support seen until the psychologically important 1.3000 handle.
In terms of resistance levels, the 1.3520/30 area is now a key short-term level to watch, marking the recent support area that gave way during Tuesday’s drop. Above that, 1.3600 is the next potential resistance.
Looking at the monthly chart of the GBP/USD, we can see that rates have now entered a massif region of resistance between 1.35 to 1.40.
Since the post-Brexit breakdown below this 1.35-1.40 area, the cable has struggled to rise back above this zone on numerous occasions. This time, it is having another crack at it following a 4-month rally. Can the bulls manage a breakthrough this time around, or will the bears prevail?
What happens here will have a big influence on the near-term direction. For example, a breakout above this key pivotal area could lead to further technical buying in the months ahead, while if we observe the formation of a bearish reversal here, then this could at least provide a sizable drop, even if ultimately, we see a breakout later in the year.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.