The British Pound (GBP) continued to weaken against the US Dollar (USD), with the GBP/USD pair trading below the mid-1.3200s during the first half of the European session on Wednesday. This move eroded much of the previous day's gains, as the USD remained broadly firm ahead of the release of the FOMC Minutes. Despite the recent decline, spot prices have remained within a familiar range over the past two weeks, as traders await further cues from the Federal Reserve's policy outlook [1].
Recent US macroeconomic data indicated moderating inflation and a slight cooling in the labor market, which has eased pressure on the Federal Reserve to raise interest rates. Nevertheless, markets are still pricing in an approximately 85% chance that the Fed will increase borrowing costs by the end of the year. As a result, the upcoming FOMC Minutes are being closely watched for additional guidance on the Fed's policy path, which is expected to influence the USD and, consequently, the GBP/USD pair [1].
Geopolitical uncertainties, particularly ongoing conflicts in the Middle East, have provided additional support for the safe-haven USD. Notably, Saudi-backed Yemeni government forces claimed control over strategic points along the Red Sea coast, while the Iran-backed Houthi group retaliated with attacks on key targets in Saudi Arabia, including an Aramco refinery in Riyadh. Iran has also increased its pace of attacks in the Strait of Hormuz over the past week, contributing to crude oil prices holding above a one-month low. The recent global bond rout has kept US Treasury yields near multi-year highs, further underpinning the USD. However, expectations for tighter monetary policy from the Bank of England could offer some support to the GBP, suggesting caution before making further bearish bets on the GBP/USD pair [1].
Strategists at UOB Group noted that their previous expectation for GBP/USD to range-trade between 1.3195 and 1.3245 was incorrect after the Pound rose to a high of 1.3286. They now see a chance for GBP to retest 1.3285, but consider a continued rise above this level unlikely, with major resistance at 1.3315 also unlikely to be threatened. On the downside, support is seen at 1.3240, followed by 1.3220. Technical analysis suggests the recent range-bound price action could be categorized as a bearish consolidation phase, with the pair trading beneath the 100-period Simple Moving Average on the 4-hour chart [1].
CONCLUSION
The GBP/USD pair remains under pressure as the US Dollar retains strength ahead of the FOMC Minutes, with geopolitical tensions and high US Treasury yields supporting the USD. While there is limited upside for the Pound, expectations for tighter Bank of England policy may provide some support. Market participants are closely watching the FOMC Minutes for further direction.