Pound Extends Recovery Run as Traders Focus on 1.3500 Breakout

Traders' Opinions

Summary:

GBP/USD slipped toward 1.3470 as softer UK bond yields and weak domestic economic data reduced expectations of a near-term Bank of England rate hike, while renewed Middle East tensions kept the US Dollar supported.

BUY GBPUSD

EXP

PENDING

1.34900

Entry Price

1.36200

1.34100

1.34672 -0.00387 -0.29%

Pips

PENDING

1.34100

Exit Price

1.34900

Entry Price

1.36200

The British Pound weakened against the US Dollar on Tuesday, with GBP/USD retreating toward the 1.3470 region during the European session as investors continued to reassess the outlook for Bank of England monetary policy amid deteriorating UK economic conditions. Sterling came under renewed selling pressure after a sharp decline in UK government bond yields reinforced the view that the BoE may struggle to justify another interest rate increase in the near term despite persistent inflationary concerns tied to elevated energy prices.

The move lower in the Pound reflects a notable shift in market sentiment following a series of disappointing UK economic releases that have raised fears over the strength of the domestic economy. Yields on benchmark 10-year UK gilts dropped sharply earlier in the session, touching 4.82%, their lowest level in more than a month, before recovering modestly to trade near 4.86%. Even with the rebound, gilt yields remained significantly below recent highs, signaling that investors are steadily scaling back expectations for a more aggressive tightening cycle from the Bank of England.

Markets are increasingly concerned that the UK economy may be losing momentum at a time when households and businesses are still grappling with elevated borrowing costs and stubborn inflationary pressures. Last week’s batch of economic data reinforced those fears. The UK Office for National Statistics reported that the ILO unemployment rate climbed to 5% in the three months to March, highlighting a cooling labour market that could eventually reduce wage-driven inflation pressures.

At the same time, business activity data painted a weaker-than-expected picture of economic momentum. Preliminary S&P Global PMI figures showed an unexpected decline in the Composite PMI for May, suggesting that activity across both the manufacturing and services sectors may be slowing more rapidly than policymakers had anticipated. The disappointing survey data added to concerns that tighter financial conditions are beginning to weigh more heavily on economic growth.

Retail activity also showed signs of strain. UK monthly Retail Sales contracted by 1.3%, underscoring ongoing pressure on consumer spending as higher living costs continue to erode household purchasing power. Taken together, the data has prompted traders to question whether the Bank of England will be willing to push rates higher in the coming months, even as geopolitical tensions threaten to keep global energy prices elevated.

While the Pound weakened, the US Dollar remained relatively resilient despite surrendering part of its earlier gains. The US Dollar Index (DXY) traded modestly firmer near the 99.05 area as investors maintained a cautious stance amid renewed geopolitical uncertainty in the Middle East.

Market attention remains firmly focused on escalating tensions involving Iran after the US Central Command confirmed strikes targeting Iranian-linked threats. Washington described the attacks as defensive operations aimed at protecting US troops in the region. The renewed military activity has revived concerns about broader instability across the Middle East and the potential risks to global energy supplies, keeping safe-haven demand for the US Dollar intact.

However, the Dollar’s upside momentum remained somewhat limited as investors balanced geopolitical risks against growing uncertainty surrounding the Federal Reserve’s policy outlook. Even so, the Greenback continues to benefit from relatively stronger US economic resilience compared with the UK economy, reinforcing the divergence currently weighing on Sterling.

Technical Analysis

Price action in GBP/USD continues to exhibit a constructive bullish recovery on the 4-hour timeframe after the pair rebounded sharply from the 1.3310 region earlier this month. The recent sequence of higher lows and higher highs suggests that buyers are gradually regaining control following the aggressive selloff seen in mid-May. The pair is now consolidating just beneath the 1.3500 psychological barrier after successfully reclaiming the 1.3460 resistance zone, which previously acted as a key supply area.

The broader structure points to an evolving bullish continuation pattern, with the pair holding comfortably above the 1.3420 and 1.3380 support regions. These levels now represent important short-term demand zones that could absorb any corrective pullbacks. As long as GBP/USD remains above these areas, the near-term upside outlook remains intact.

The latest rebound also indicates that market participants are positioning for a potential breakout above the recent swing highs near 1.3500–1.3520. A sustained move beyond this barrier would likely confirm bullish continuation momentum and expose the next major resistance cluster around 1.3560, followed by the 1.3620 region. The projected move on the chart further reinforces expectations that buyers could attempt a broader recovery toward the upper end of May’s trading range.

From a momentum perspective, bullish pressure appears to be strengthening again after a brief consolidation phase. The Relative Strength Index (RSI) is likely holding above the neutral 50 level and gradually turning higher, suggesting improving buying momentum without yet reaching overbought territory. This indicates there is still room for additional upside before exhaustion signals begin to emerge.

Meanwhile, the Moving Average Convergence Divergence (MACD) appears to be stabilizing after its recent correction and is attempting to cross back into positive territory. This reflects fading bearish momentum and supports the case for another leg higher if resistance levels are cleared decisively.

On the downside, failure to hold above the 1.3460 breakout area could trigger a temporary corrective decline toward the 1.3420 support zone. A deeper break below that level would expose 1.3380 and potentially shift momentum back in favor of sellers. However, the current market structure continues to favor buying dips rather than chasing downside moves.

Overall, the technical outlook remains cautiously bullish while GBP/USD trades above key short-term support levels. Bulls now need a decisive breakout above 1.3500 to confirm continuation toward higher resistance targets.

TRADE RECOMMENDATION

BUY GBP/USD

ENTRY PRICE: 1.3490

STOP LOSS: 1.3410

TAKE PROFIT: 1.3620

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Pound Extends Recovery Run as Traders Focus on 1.3500 Breakout

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