Pound Rebounds in the Short Term, but Downtrend Remains Intact

Summary:

Rising safe-haven demand and concerns over the U.S. inflation outlook continue to support the dollar. Although expectations of further rate hikes provide some support for the pound, political uncertainty in the UK has weakened that support, leaving GBP/USD likely to remain under pressure from the stronger U.S. dollar over the longer term.

SELL GBPUSD

EXP

PENDING

1.34280

Entry Price

1.33111

1.34863

1.33522 -0.00149 -0.11%

Pips

PENDING

1.33111

Exit Price

1.34280

Entry Price

1.34863

Fundamentals

During Wednesday's European session, GBP/USD entered a consolidation phase after rebounding from a three-week low over the previous two trading days. The pair traded within a narrow range around the 1.3400 level.

Market sentiment remained cautious as investors reduced directional bets ahead of the release of U.S. CPI data while continuing to monitor developments in the Middle East and their implications for the global economy and monetary policy.

Renewed tensions in the Middle East have boosted safe-haven demand, allowing the U.S. dollar to continue benefiting from its traditional status as a defensive asset. In addition, concerns about the U.S. inflation outlook have also supported the greenback.

Elevated energy prices caused by geopolitical tensions have increased fears of renewed inflationary pressures. Investors generally expect the U.S. Consumer Price Index for May to remain relatively strong. Should inflation data exceed market expectations, it could further strengthen the case for the Federal Reserve to maintain high interest rates or even raise rates again, thereby supporting the dollar and putting additional pressure on GBP/USD.

Markets have gradually begun pricing in the possibility of another Fed rate hike before the end of the year. Strong U.S. economic data, particularly the resilient labor market, have provided room for the Fed to maintain a hawkish stance. Therefore, even if inflation moderates somewhat, investors may require more evidence that inflation has returned to a sustained downward path. As a result, the dollar is likely to retain support in the near term.

In contrast, the pound's domestic fundamentals remain more complicated. Although markets expect the Bank of England to raise rates by at least 25 basis points before the end of 2026, providing some support for sterling, political uncertainty in the UK has reduced investor confidence.

Prime Minister Keir Starmer has come under political pressure following the resignation of several junior government officials. Concerns over his ability to push forward policy initiatives have limited the positive impact of Bank of England tightening expectations on the pound.

Overall, GBP/USD is likely to remain under pressure from the U.S. dollar for an extended period.

Technical Analysis

On the 4-hour chart, GBP/USD remains within a descending channel. After bottoming out on June 8, the pair began to rebound but has temporarily encountered resistance at 1.34081, which is also close to the 23.6% Fibonacci retracement level.

A break above this level could pave the way for a move toward the upper boundary of the channel. If that resistance is also broken, a new short-term uptrend could emerge.

Immediate support is located at 1.33713. Only while holding above this level can GBP/USD maintain the potential for further gains. The key support remains the lower boundary of the descending channel at 1.33111.

From an indicator perspective, the Ichimoku baseline is moving sideways, while the conversion line has risen toward the baseline and is now also flattening. Price action is hovering near the baseline, suggesting that GBP/USD may see a modest further rise before resuming its downward trend.

In the ADX indicator, both the +DI and -DI are declining, with the -DI positioned below at around 11.36 and approaching rebound territory. Meanwhile, the ADX line itself is rising, indicating that bullish momentum is still strengthening.

Overall, the technical indicators suggest that the pound may experience one more short-term rally before the broader downtrend resumes. Pound Rebounds in the Short Term, but Downtrend Remains Intact_1

Pound Rebounds in the Short Term, but Downtrend Remains Intact_1

Pound Rebounds in the Short Term, but Downtrend Remains Intact_2

Trading Recommendation

Direction: Short

Entry Level: 1.34280

Target Level: 1.33111

Stop Loss: 1.34863

Support Levels: 1.337131.33111

Resistance Levels: 1.340811.34381

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