British Pound Surges to 1.3577 as Risk Rally, BoE Tensions Drive GBP/USD Upside

GBP/USD Extends Gains to 1.3577 as Retail Bets, Trade Euphoria Collide with Fiscal Risks

Sterling Rallies as US–Japan Trade Pact Fuels Global Risk Appetite

The British pound extended its rally on July 23, 2025, with GBP/USD pushing as high as 1.3577, marking a three-day climb driven by a sharp improvement in market sentiment. The trigger: an ambitious US–Japan trade pact involving $550 billion in Japanese investments into the U.S., coupled with 15% tariffs on Japanese goods. While the dollar briefly bounced on the news, the broader risk-on mood sent capital flowing into high-beta currencies like GBP.

This sharp lift saw GBP/USD breach the 1.3515 resistance and gain more than 0.30% intraday, reaching levels not seen since early July. Traders are now debating whether this surge marks a temporary relief rally or the beginning of a broader breakout. Despite this bullish momentum, the rally comes against a backdrop of renewed concerns over UK fiscal imbalances, as ONS borrowing data showed another spike in government spending, leaving the pound exposed to sentiment reversals.

Retail Sales Expectations Raise BoE Policy Doubts

A critical macro trigger looms in the form of UK Retail Sales, expected to rise 1.2% for June after a sharp –2.7% drop in May. A beat on this figure could embolden bets that the Bank of England will hold rates at 4.25% after the recent 6–3 vote split. However, any miss may weigh heavily on the pound, especially amid signs that Governor Andrew Bailey is preparing for a more dovish pivot to combat rising budget pressures.

The BoE’s August 7 meeting now looms as the next potential volatility event for the pair. The pound may stay confined in a narrow range unless economic data surprises on either end. Traders remain wary that another downside retail miss could drag GBP/USD back toward 1.3365, the monthly low.

Technical Structure Suggests Bulls Testing 1.3580 Pivot, but Breakout Needs Fuel

From a chart perspective, GBP/USD is carving out a clean bullish channel, holding above both its 50- and 100-period EMAs at 1.3477 and 1.3481 respectively. The move above 1.3515 confirmed a near-term breakout, but the key test lies ahead at 1.3583, which aligns with short-term Fibonacci extension levels. If bulls can force two hourly closes above 1.3550–1.3580 without major upper wicks, this could set the stage for a run to 1.3657, then potentially 1.3789, the July high.

However, failure to hold 1.3515 would open the door for retracement to 1.3467, with stronger technical floor seen at 1.3375, where a bullish double-bottom was formed earlier this month. The bearish invalidation level lies below 1.3310, tied to the 100% Fib extension and breakdown risk.

DXY Softens Despite Trade Win as Fed Chaos, Trump’s Powell Attacks Disrupt Policy Trajectory

Even with the Japan deal, the U.S. Dollar Index (DXY) remains fragile, hovering at 97.41, capped by resistance at 97.56 and trapped below both the 50- and 100-period EMAs (97.92/97.97). The dollar's structural weakness continues to dominate despite sporadic trade optimism. President Trump’s escalating attacks on Fed Chair Powell, coupled with renewed pressure to slash rates to 1.00%, have further undermined the Fed’s policy credibility.

Markets are now cautiously eyeing Thursday’s S&P Global PMI data, but until clarity emerges, the greenback remains vulnerable — especially against a relatively hawkish BoE. This dynamic reinforces the pound’s recent resilience, even if it lacks fundamental clarity beyond short-term flows.

GBP/USD Bulls Face Diverging Macro Signals as UK PMI, U.S. Yields, and BOE Path Collide

Looking ahead, sentiment hinges on Thursday’s UK PMI release, which could reset expectations around UK growth, and by extension, BoE policy. Traders are also watching U.S. Treasury yields, which have flattened but not fully inverted, providing limited support for the greenback. A strong UK PMI print may reinforce bullish positioning in GBP/USD, especially if it coincides with another soft read on U.S. manufacturing or services.

The lack of insider transaction data or institutional flows specific to sterling does limit conviction behind the rally, but the recent bounce above 1.3500 suggests momentum traders are in control. Until the pair breaks decisively above 1.3583, or falls back below 1.3470, short-term bias remains range-bound within a bullish envelope.

Verdict: GBP/USD is a tactical BUY, provided 1.3515 holds, and confirmation emerges above 1.3583. Stops should be placed below 1.3467, with upside potential targeting 1.3657–1.3789. That said, fiscal stress and policy divergence risks keep the broader outlook volatile and skewed toward data sensitivity.

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