GBP/USD climbed 1.17% last week and reclaimed its 21-day moving average, but the pound still needs to break nearby resistance to turn a rebound into a genuine recovery. This week’s U.S. data and Wednesday’s Fed minutes will decide the direction.
The pound-to-dollar rate has reclaimed its 21-day moving average, a sign that short-term downside momentum is fading, yet Pound Sterling Live warns the recovery must still prove itself. GBP/USD advanced 1.17% last week after recently falling as low as 1.3160, showing signs of stabilisation. But the pair still trades beneath its falling 21-day and 100-day averages, leaving the balance of probabilities slightly in favour of the dollar.
The 100-day average is the hurdle
Reclaiming the 21-day moving average matters because that line had been capping rallies during the June decline, so moving back above it suggests Sterling is attempting to build a base. The key question is whether the pair can convert the rebound into something broader.
For that to happen, the exchange rate needs to hold above the 21-day line and push towards the more important 100-day moving average near 1.3407. Below that resistance the rally is best viewed as corrective; above it, the outlook would turn more decisively constructive.
The dollar side still drives the pair
As in recent weeks, the USD side of the equation remains the primary driver of direction. Last week’s U.S. jobs report punctured a growing U.S. exceptionalism trade, delivering an undershoot after a run of above-consensus prints. The data watch continues with ISM services on Monday, and an above-consensus reading could help the dollar steady.
Beyond Monday the remaining numbers are second-tier and unlikely to shift the needle. Lloyds Bank instead points to the Fed minutes on Wednesday as the more important focus, a first read on the Warsh-led FOMC debate.
A pendulum of Fed expectations
Dollar outperformance through June and into early July has tracked a rapid recalibration of what the market expects the Federal Reserve to do with interest rates. Expectations have swung from cuts to hikes and, over recent days in the wake of the jobs report, traders have started to cool hike bets again.
The June meeting anchors that shift. The Fed held rates steady and published a dot plot showing 9 of 18 governors favouring hikes this year alongside raised inflation projections. The dollar rose across the board, with the pound-to-dollar rate falling 1.0% to 1.3375. Wednesday’s minutes will show how close the committee sits to a hike versus an extended hold.
Source: Pound Sterling Live
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