The Pound Sterling managed to recover above the 1.3500 psychological mark on Tuesday after dipping to an intraday low near 1.3485. The recovery comes as the US Dollar retreats from recent highs, allowing GBPUSD to regain some ground despite still trading within a bearish corrective channel formed since last Friday’s peak.
The broader trend remains cautious, as the pair has already staged a sharp rebound of nearly 3% from early August lows near 1.3145. With sentiment balancing between UK inflation expectations and the upcoming Federal Reserve outlook, traders are bracing for a potentially volatile week.
UK inflation forecast at two-year high
The primary driver for GBP traders this week is July’s UK Consumer Price Index (CPI), due Wednesday. Market consensus expects headline inflation to accelerate to 3.7% YoY, up from 3.6% in June and 3.4% in May. If confirmed, this would mark the fastest pace of price growth in nearly two years, extending the steady climb since September’s low of 1.7%.
Such an outcome would lend weight to the Bank of England’s hawkish members, who have pushed back against calls for further interest rate cuts. Higher inflation makes the case for tighter monetary conditions, or at least for delaying easing, supporting demand for the Pound in the short term.
Dollar weakens on risk-on mood and Ukraine headlines
On the US side, the Greenback has eased after strong gains last week. The cooling comes as optimism grows over progress in Ukraine peace discussions, boosting risk appetite across global markets. Equity sentiment has improved in Europe and the US, putting mild downward pressure on the safe-haven Dollar.
At the same time, traders remain cautious ahead of the Jackson Hole Symposium, where Federal Reserve Chairman Jerome Powell is expected to signal the Fed’s stance on interest rates. Markets widely anticipate a September rate cut, but the timing and size remain uncertain, meaning Powell’s words could be pivotal for the Dollar’s near-term direction.
Concerns about higher UK inflation keep Pound supported
For now, higher inflation expectations are keeping Pound from falling further. With headline inflation projected to rise and core inflation also likely to remain sticky, markets believe the BoE could resist dovish pressure. A hotter CPI print would likely strengthen Sterling, while a softer reading could quickly reverse gains and reinforce the bearish channel.
The Pound resilience also comes amid reduced speculative pressure. Recent positioning data suggests traders have been dialing down Pound shorts, preferring a more neutral stance until CPI data provides clarity.
Technical outlook: GBPUSD capped by bearish channel
From a technical perspective, GBPUSD continues to trade within a downward-sloping channel from last Friday’s highs.
Immediate support lies at 1.3485, the day’s low, followed by 1.3450, a level that could trigger further selling pressure if broken.
Key resistance is seen at 1.3550/60, aligned with the upper boundary of the descending channel. A break above this zone could open the way towards 1.3620, and potentially 1.3700, if momentum builds.
On the downside, a sustained break below 1.3450 would expose 1.3380 and then the August 1 rebound origin at 1.3145.
Momentum indicators are mixed. The RSI hovers near 50, suggesting neutrality, while the 50-day moving average near 1.3420 provides a technical floor. As long as GBPUSD holds above 1.3450, the pair may consolidate, but downside risks linger without a strong inflation catalyst.
Data and central banks in focus
Looking ahead, the next 48 hours could prove decisive for Pound traders. Wednesday’s UK inflation report will set the tone for BoE expectations, while Powell’s Friday speech at Jackson Hole will likely dictate the Dollar’s broader trajectory.
If UK CPI confirms the 3.7% YoY forecast or surprises higher, Sterling could extend gains beyond 1.3550, potentially breaking the bearish channel. Conversely, any downside miss on inflation would quickly shift focus back to Fed dovish bets, reinforcing USD strength and pushing GBPUSD lower.
Conclusion
The Pound Sterling’s recovery above 1.3500 offers some relief for bulls, but the bearish channel remains intact ahead of critical inflation data. With UK CPI expected at a two-year high and the Fed preparing to clarify its September policy stance, GBPUSD faces a week of heightened volatility. Traders should watch 1.3485 and 1.3550 as the key technical levels guiding short-term direction.
