GBP/USD Struggles to Capitalize on Modest Intraday Gains Beyond 1.3100 Mark

The GBP/USD pair managed to attract buyers during the Asian trading session on Tuesday, snapping a five-day losing streak that had pushed the pair to a multi-week low. Despite this positive traction, the pair has been unable to sustain its momentum above the key 1.3100 mark, raising concerns for bullish traders. A combination of factors, including the US Dollar’s (USD) modest downtick and market uncertainties, are influencing the movement of the GBP/USD pair.

This article takes a closer look at the key factors affecting the GBP/USD pair’s struggle to maintain gains and provides a detailed analysis of its near-term outlook.

GBP/USD Gains Modest Traction Amid USD Weakness

US Dollar Remains Below Recent Highs

The US Dollar has remained under some pressure, hovering below the seven-week high it touched last Friday. This USD weakness has lent some support to the GBP/USD pair, allowing it to recover from the multi-week low it hit on Monday around the 1.3560 level. Despite this recovery, the pair struggles to capitalize on these gains, particularly beyond the 1.3100 mark.

Reduced Odds of Aggressive Fed Policy Easing

One of the primary reasons for the limited upside of the GBP/USD pair is the reduced expectations for an aggressive monetary policy easing by the Federal Reserve (Fed). Signs of resilience in the US labor market have prompted market participants to dial back bets on a sharp interest rate cut by the Fed. This has kept the USD from weakening further, acting as a headwind for the GBP/USD pair.

GBP/USD Daily Price Chart

Source: TradingView, prepared by Richard Miles

Risk Sentiment and Geopolitical Tensions Cap GBP/USD Gains

Softer Risk Tone Supports USD Safe-Haven Appeal

Global market sentiment remains cautious, with concerns that the ongoing tensions in the Middle East could escalate into a wider conflict. This softer risk tone has supported the safe-haven appeal of the US Dollar, further capping the upside for the GBP/USD pair. Additionally, less optimistic comments from China’s National Development and Reform Commission (NDRC) have dampened market optimism, despite the country’s recent stimulus measures.

Weaker Equity Markets Reflect Investor Caution

The cautious mood in equity markets, fueled by concerns over geopolitical risks and slowing global economic growth, has also contributed to weaker demand for riskier assets. This has driven some haven flows toward the US Dollar, limiting the GBP/USD pair’s ability to build on its modest intraday gains.

Bank of England’s Outlook Adds Pressure on GBP

BoE Governor Hints at Possible Rate Cuts

Last week, Bank of England (BoE) Governor Andrew Bailey hinted that the central bank might adopt a more aggressive stance in cutting interest rates if inflation data continues to show improvement. While this could be seen as a positive development for controlling inflation, it also suggests that the BoE could ease monetary policy in the future, which would likely weaken the British Pound (GBP).

Impact of Rate Cut Expectations on GBP/USD

The prospect of future rate cuts by the BoE has raised concerns among market participants, as it could diminish the relative attractiveness of the GBP. As a result, any further upward moves in the GBP/USD pair are likely to be viewed as selling opportunities, with the potential for gains to fizzle out quickly.

Market Sentiment Driven by Fedspeak and Upcoming US Data

Lack of Major Economic Data on Tuesday

Tuesday’s trading session is relatively quiet in terms of major economic data releases, with no significant market-moving events scheduled in either the UK or the US. This has left the GBP/USD pair at the mercy of market sentiment and Fedspeak, with traders eagerly awaiting key events later in the week.

Focus on FOMC Meeting Minutes

The release of the Federal Open Market Committee (FOMC) meeting minutes on Wednesday is expected to provide further insights into the Fed’s monetary policy outlook. Traders will closely scrutinize these minutes, as they could offer clues on the Fed’s stance on interest rates and any potential policy changes.

Upcoming US Inflation Data

Following the release of the FOMC minutes, market participants will turn their attention to the US inflation data, particularly the Consumer Price Index (CPI) and the Producer Price Index (PPI). These inflation reports, due on Thursday and Friday, respectively, are expected to play a crucial role in shaping the USD demand and provide fresh impetus for the GBP/USD pair. Stronger-than-expected inflation data could reinforce expectations for a less aggressive Fed rate cut, further supporting the USD and weighing on the GBP/USD pair.

Technical Outlook: GBP/USD Faces Resistance Near 1.3100

Key Resistance and Support Levels

From a technical perspective, the GBP/USD pair faces strong resistance around the 1.3100 mark, which has prevented further gains in recent sessions. A sustained move beyond this level is needed to trigger a fresh wave of buying interest. On the downside, the recent multi-week low near 1.3560 serves as a key support level, with any break below this zone likely to intensify selling pressure.

The path of Least Resistance Is to the Downside

Given the combination of factors weighing on the GBP/USD pair, the path of least resistance appears to be to the downside. The pair’s inability to maintain gains beyond the 1.3100 mark and the ongoing uncertainties surrounding the Fed and BoE’s monetary policy outlooks suggest that any further upside is likely to be limited. As a result, traders should approach bullish positions with caution, as the risks of a quick reversal remain elevated.

GBP/USD Faces Limited Upside Amid Policy Uncertainty

In summary, the GBP/USD pair has managed to snap a five-day losing streak but has struggled to sustain momentum beyond the 1.3100 mark. While the USD’s modest downtick has provided some support, the reduced odds of aggressive Fed easing and cautious global risk sentiment and BoE rate cut expectations have capped gains for the currency pair.

With key events such as the FOMC meeting minutes and US inflation data on the horizon, the GBP/USD pair is likely to remain range-bound in the near term, with the potential for further downside if the data favors the USD. Traders should remain cautious, as the overall outlook suggests that any move higher in the pair may be short-lived.