Pound Holds Above 1.3500 Ahead of Fed, BoE Rate Calls

Key Moments

Fundamental Drivers

The GBP/USD pair is struggling to extend Friday’s recovery from near its monthly swing low, with the exchange rate hovering just above the 1.3500 psychological level at the start of the new week. Market participants are refraining from initiating strong directional positions and are instead adopting a wait-and-see stance ahead of significant central bank events.

The US Federal Reserve and the Bank of England are set to unveil their latest monetary policy decisions on Wednesday and Thursday, respectively. US inflation data released last week reinforced expectations that the Federal Reserve could lift interest rates by 25 basis points. This outlook, combined with heightened tensions in the Middle East, is lending support to the safe-haven US Dollar and is restraining further upside in GBP/USD.

Geopolitical Tensions Support the Dollar

Geopolitical developments in the Middle East are adding to the risk-averse tone and sustaining demand for the Greenback. Yemen’s Iran-backed Houthi fighters stated that they used drones and missiles to hit a military base in southern Saudi Arabia. In addition, an Iranian cargo ship was hit early Sunday in the Strait of Hormuz, and a scheduled regional meeting between Gulf states and Iran about the Strait of Hormuz has been postponed. These developments are maintaining a geopolitical risk premium that is favorable for the US Dollar.

UK Data and BoE Expectations for the Pound

The British Pound is finding some support from the stronger UK GDP data released on Friday. The report showed that the economy expanded by 0.4% in July, compared with consensus expectations for no growth. Looking ahead, traders are focusing on the UK labor market report due Tuesday and the UK CPI release scheduled for Wednesday as potential catalysts for short-term volatility.

However, prevailing market expectations that the Bank of England will keep interest rates unchanged at 3.75% are discouraging aggressive bullish positioning in Sterling and are helping to cap gains in GBP/USD.

Technical Picture: Key Levels for GBP/USD

On the 4-hour chart, GBP/USD is trading just beneath a notable resistance cluster that includes the 200-period Simple Moving Average at 1.3522 and the 38.2% Fibonacci retracement level at 1.3516. This configuration is maintaining a mildly bearish near-term bias and indicates that upside attempts are constrained unless buyers can decisively break above this area.

A clear move above this resistance zone would expose the 23.6% Fibonacci retracement at 1.3575, followed by the cycle anchor near 1.3671. On the downside, initial support is located at the 50.0% retracement at 1.3468. Below that, further support levels are seen at the 61.8% retracement at 1.3420 and the 78.6% retracement at 1.3352, ahead of a more significant base around 1.3265.