GBP/USD rose to 1.3552 on Thursday, reaching its highest level since 29 August. The pound strengthened despite oil prices rising above 100 USD per barrel and a further escalation in Middle East tensions.
The main source of support for sterling remains a reassessment of the Bank of England’s monetary policy outlook. Investors do not expect the Bank to raise interest rates at its next meeting, but markets are pricing in at least two rate hikes by March next year, with about a 40% probability of a third increase. By comparison, investors currently expect only two rate hikes from the Federal Reserve over the same period.
The UK inflation backdrop is also reinforcing expectations of tighter monetary policy. Consumer price inflation accelerated to 2.9% in July, up from 2.6% the previous month. At the same time, rising oil and gas prices are putting additional pressure on the UK economy, which remains heavily dependent on imported energy.
However, the Bank of England is seeking to temper increasingly aggressive market expectations. Governor Andrew Bailey has stressed that further monetary tightening is not guaranteed. Elevated oil prices and fiscal risks ahead of the autumn Budget are adding to the uncertainty.
Against this backdrop, the pound may retain some support, but the scope for further gains remains limited for now.
GBP/USD Technical Analysis
On the H4 GBP/USD chart, the market has nearly reached the local target of the current upward move at 1.3566 and is forming a narrow consolidation range below this level. The range has so far expanded downwards to 1.3533.
A breakout below the range could open the way for a move lower towards 1.3527. If the price breaks above the range instead, a corrective move towards 1.3572 cannot be ruled out.
Further downside could bring the market towards the broader bearish target at 1.3452.
The MACD indicator supports this scenario. Its signal line remains above zero and points firmly upward.
On the H1 GBP/USD chart, the market has formed a tight consolidation range around 1.3523. The range has expanded downwards to 1.3520 and upwards to 1.3566.
The next expected move is a decline towards 1.3527.
The Stochastic oscillator also supports the short-term bearish scenario. Its signal line is above 80 and is pointing sharply downwards. In the short term, a move towards 20 is expected.
GBP/USD Outlook
Sterling remains supported by expectations that the Bank of England could maintain a tighter monetary policy stance than the Federal Reserve over the coming months. Persistent inflationary pressures reinforce this view, although rising energy prices and uncertainty around the UK fiscal outlook remain significant risks.
From a technical perspective, GBP/USD is approaching key resistance around 1.3566–1.3572. Failure to break decisively above this zone could trigger a correction towards 1.3527, with 1.3452 emerging as the next downside target if selling pressure intensifies.
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