Pound Sterling Holds Gains as US Inflation Data Looms

The Pound sterling has regained ground against the US dollar in late July, reversing earlier declines and setting up a more positive short-term outlook. This shift comes as traders and businesses await a crucial US inflation report on Wednesday, which is expected to shape the direction of the GBP/USD exchange rate for the week ahead. The pair has moved back above its 100-day moving average, a technical indicator closely watched by market participants, and is now testing a resistance level that has repeatedly capped advances since May.

At the end of last week, the GBP/USD spot rate stood at 1.34922, above the 100-day moving average of 1.34060, and briefly reached 1.35090 on Friday. This marks a notable change from two weeks earlier, when the pair struggled below a declining average and downside risks dominated. The Relative Strength Index (RSI), a measure of market momentum, read 59.44-above its recent average-indicating that buyers have the upper hand, but without yet signaling an overbought market. The immediate technical barrier is 1.35064, a level that has limited rallies in May, June, and July. Friday's attempt to close above this ceiling failed, leaving the market poised for another test.

Key Levels and Upcoming Data

A daily close above 1.35064 would open the way toward 1.36609, a level that has contained every rally since July 2025 and defines the broader trading range. On the downside, support is found at the 100-day moving average (1.34060), followed by 1.33020 and 1.32735-the latter marking the higher low set during July's decline. The July low of 1.31402 remains the key floor. Over the past year, GBP/USD has traded between roughly 1.31402 and 1.36609, with the recent sequence of higher lows suggesting a gradual shift in sentiment, but not a clear breakout from the established range.

The week's main event is Wednesday's US consumer price inflation (CPI) release, followed by producer prices on Thursday and additional US data later in the week. June's CPI report showed weaker-than-expected inflation, with the headline annual rate falling to 3.5% and core inflation dropping to 2.6%. Energy prices, which had spiked amid geopolitical tensions in July, have since eased, and economists expect the annual headline rate to slip further to 3.4%, with core inflation forecast to rise 0.2% month-on-month and the annual core rate to ease to 2.5%. However, with another inflation report due before the Federal Reserve's next policy meeting, Wednesday's data may not settle the outlook entirely.

Sterling's Recovery and Dollar Weakness

Sterling's recent gains have been driven more by US dollar softness than by domestic UK factors. The dollar weakened sharply after a disappointing US labor market report on Friday, which showed job losses in July and led markets to scale back expectations for further Federal Reserve rate hikes. This allowed GBP/USD to briefly rise above 1.35, a move that has largely held since. The broader context is a market reassessment following the July Federal Reserve meeting, with recent data supporting a less aggressive US rate path. If Wednesday's CPI report confirms softer inflation, the remaining rate hike premium could be squeezed out of the dollar, potentially giving sterling the momentum to break above resistance. Conversely, a stronger-than-expected inflation reading would likely reinforce the ceiling and could trigger renewed dollar strength.

It is important to note that the UK's own interest rate outlook has not provided much support for sterling. The gap between UK and US two-year government bond yields has narrowed in recent weeks, making the pound's recovery more a function of dollar weakness than domestic strength. Thursday's release of UK second-quarter GDP, expected to show 0.4% quarterly growth, could offer some independent support for sterling if it meets or exceeds expectations. Otherwise, the pound remains vulnerable to shifts in US data and sentiment.

Range Trading and Practical Implications

For businesses and individuals with dollar payment needs, GBP/USD remains in the upper half of its established range. A sustained move higher would require a clear break above 1.36609, not just a temporary push through 1.35064. Until then, the pair is likely to remain sensitive to US inflation data, Federal Reserve policy expectations, and any surprises in UK economic releases. As highlighted in recent analysis of sterling's performance against the dollar and euro, narrowing yield spreads and shifting global market dynamics continue to play a central role in currency movements.

According to recent market data, the GBP/USD spot rate closed last week at 1.34922, having traded as high as 1.35090 on Friday. The 100-day moving average stands at 1.34060, with the Relative Strength Index at 59.44. Economists expect the US annual headline inflation rate to fall to 3.4% in July, with core inflation easing to 2.5%. UK second-quarter GDP is forecast to rise by 0.4% quarter-on-quarter, above the Bank of England's previous assumption of 0.3%.

Technical analysis plays a significant role in currency markets, especially when fundamental data is mixed or inconclusive. Moving averages, such as the 100-day average, help traders identify prevailing trends and potential turning points. Resistance and support levels mark areas where buying or selling pressure has historically been strong, often reflecting the collective behavior of market participants. However, these technical signals are not guarantees; they can be quickly overridden by unexpected economic data, policy announcements, or geopolitical events. For those managing currency exposure, understanding both the technical and fundamental drivers is essential for navigating periods of uncertainty.