British Pound Analysis: GBP/USD Under Pressure Ahead of Quarter-End, 1.25 in Focus

GBP/USD Takeaways

• The US dollar is bouncing off its intraday lows after generally strong economic data this morning.
• With traders already pricing in an 80% chance of a 50bps rate hike from the BOE in August, much of the potential good news for GBP/USD may be discounted already.
• GBP/USD is seeing month- and quarter-end profit-taking ahead of the weekend, but may find support around 1.2500 next week.

GBP/USD Fundamental Analysis

There’s been little in the way of UK-specific economic data over the past 24 hours, and as a result, the British pound has been fluctuating more as a result of news from other regions. This morning’s US data was generally strong, with both the final revision for Q1 GDP (up to 2.0% annualized) and initial jobless claims (down to 239K) coming in better than expected, though the late morning reading on pending home sales (-2.7%) put bit of a damper on the economic enthusiasm.

Turning our attention back to sterling, traders are pricing an 80% chance of a 50bps rate hike from the Bank of England at its next meeting in August…which may paradoxically be a sign that the odds are tilted to the downside for GBP/USD. With a large rate hike already heavily priced in five weeks from now, there’s relatively little potential for markets to raise their expectations for UK interest rates in the near term; meanwhile, any signs of weakness across the next month+ of UK (and global) economic reports could open the door for a smaller 25bps rate hike from the BOE, presenting asymmetric downside in the British pound.

British Pound Technical Analysis – GBB/USD Daily chart

Source: TradingView, StoneX

Turning our attention to the chart, GBP/USD broke below key previous-resistance-turned-support at 1.2680 yesterday and is extending its losses so far today. Many analysts are attributing this week’s downdraft to month- and quarter-end rebalancing ahead of the weekend, so there’s certainly potential for a bounce as we head into next week.

For the short term though, the next level of support to watch is the 50% Fibonacci retracement of the late May-mid-June rally at 1.2580, with stronger support coming from the deeper Fibonacci retracements and the 50-/100-day EMAs in the 1.2500 area. With strong support in this zone and potentially quieter “holiday” trading conditions to start next week, it may be difficult for bears to keep pushing prices lower, allowing the longer-term uptrend to reassert itself as we flip the calendar into H2.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX