GBP/USD Price Forecast: Is the British Pound Poised for Further Gains or a Pullback Below 1.34?
The GBP/USD currency pair has shown remarkable strength recently, holding steady at 1.3429 on Thursday morning, slightly below its peak of 1.3468, which was recorded just the day before. This represents the highest level the British Pound has reached against the US Dollar since February 2022. The recent surge in GBP/USD is largely attributed to two key factors: persistent inflationary pressure in the UK and a weakening US Dollar. The recent Consumer Price Index (CPI) data for the UK revealed an unexpected rise to 3.5% YoY in April, a sharp increase from 2.6% in March. This inflation data has significantly altered market expectations, with investors now anticipating only a single 25 basis-point rate cut from the Bank of England by the end of 2025, down from previous expectations of multiple cuts. As a result, the market's outlook on GBP has turned increasingly positive.
The rally in GBP/USD has been primarily driven by the UK's inflation data, which continues to outpace expectations. Services sector inflation, in particular, surged from 4.7% to 5.4%, indicating that price pressures are not only persistent but also broadening across the economy. This has overshadowed concerns over a potential slowdown in the UK economy, as the Bank of England's recent rate cut of 25 basis points in May was a more cautious move, with policymakers divided on the decision. The strong economic data and a reduction in market expectations for more aggressive monetary policy easing have buoyed the British Pound, pushing it higher against the US Dollar, which has been struggling with its own set of challenges.
The U.S. Dollar Struggles Amid Debt Concerns and Economic Weakness
On the other hand, the US Dollar has been on the back foot, primarily due to concerns over the US fiscal deficit and broader economic challenges. Moody's recently downgraded the US credit rating from Aaa to Aa1, citing the country's unsustainable debt levels. According to Moody's, the US federal debt is projected to climb to 134% of GDP by 2035, up from 98% in 2023, which has fueled concerns about the long-term fiscal health of the United States. The downgrade has contributed to a bearish sentiment surrounding the US Dollar, as investors become wary of its future prospects amidst a rising debt burden.
Furthermore, the economic outlook for the US has been dampened by weaker-than-expected data on CPI, PPI, and retail sales. This has strengthened expectations that the Federal Reserve will continue to ease interest rates in 2025, further diminishing the appeal of the US Dollar. The weakening of the Dollar has provided additional support to GBP/USD, as the pair benefits from the relative strength of the British Pound.
GBP/USD Technical Outlook: Resistance Levels and Potential for Pullback
From a technical perspective, GBP/USD is currently testing key resistance levels, with 1.3468 acting as the immediate hurdle. If the pair manages to break above this level, it could target 1.3513 and eventually 1.3568. However, small-bodied candlesticks near resistance suggest some hesitation in the market, which could indicate that the pair may consolidate before making its next move. Should GBP/USD pull back, support levels at 1.3410 and 1.3335 could provide an entry point for bullish traders looking to take advantage of potential rebounds.
The pair remains well above the 50-EMA at 1.3346 and the 200-EMA at 1.3233, reinforcing the bullish trend in the near term. However, as seen in previous price action, GBP/USD could face a downward breakout if the support at 1.3410 fails to hold. In such a scenario, the pair could decline towards 1.3300 and potentially lower levels such as 1.3131.
What’s Next for GBP/USD? Can the British Pound Maintain its Strength Against the US Dollar?
The outlook for GBP/USD hinges on several key factors. As the pair tests resistance levels and the market digests the latest inflation data from the UK, traders will need to monitor how the US Dollar responds to ongoing economic challenges. If the US Dollar continues to weaken due to concerns over fiscal health and lower interest rates, GBP/USD may be able to sustain its upward momentum.
However, any surprise shifts in US economic data, particularly in the form of stronger-than-expected PMI releases or unexpected developments regarding the US debt situation, could quickly shift the balance in favor of the US Dollar. For now, the trend remains bullish for GBP/USD, but traders should be prepared for potential volatility as the pair navigates these key technical levels.
Conclusion: Buy, Sell, or Hold GBP/USD?
Given the current technical structure and the UK’s stronger-than-expected economic data, the outlook for GBP/USD remains bullish. If the pair manages to break through 1.3468, it could test higher resistance levels at 1.3513 and 1.3568. However, traders should be cautious of potential pullbacks and watch for price action at key support levels. If the Dollar continues to weaken amid fiscal concerns and market expectations of rate cuts, the British Pound could continue its bullish trajectory. At this point, the outlook favors holding GBP/USD for further upside, with the potential for additional gains if the pair clears resistance.
