The British Pound has extended its winning streak against the US Dollar, trading near a two-month high above 1.3620 as market participants position ahead of critical central bank decisions from both the Federal Reserve and Bank of England. GBP/USD's recent move to this level represents significant progress following months of consolidation below resistance at 1.3575, with traders now assessing whether this bullish momentum can be sustained through upcoming policy meetings.
Current Market Position: Technical Breakthroughs
The pound has demonstrated strong technical resilience in recent trading sessions, breaking above key psychological and moving average levels that had previously contained price action. The GBP/USD pair is currently testing the upper boundary of an ascending channel pattern while maintaining position above its 20-day Exponential Moving Average (EMA) at approximately 1.3508.
Chart Pattern Confirmation
The recent breakout from a contracting triangle formation on the four-hour chart confirmed that bullish momentum has gained sufficient strength to continue higher. This pattern was characterized by lower highs and lower lows before price surged above resistance, which had previously been tested multiple times without success. The current structure shows clear evidence of buyer dominance with higher highs forming since August 1.
The Relative Strength Index (RSI) remains in the positive territory but has recently moved closer to overbought conditions near 65.00 on a daily timeframe, suggesting that while momentum is strong, some consolidation may be needed before further significant gains can occur. The Moving Average Convergence Divergence (MACD) indicator continues to show bullish signals with its line above the signal line and positive histogram bars.
Key Technical Levels for GBP/USD
The immediate resistance zone lies between 1.3620-1.3650, where previous price action has encountered consolidation challenges in recent weeks. This area represents a critical threshold that must be breached to confirm the continuation of bullish momentum toward higher targets.
On the downside, support is firmly placed at the psychological level of 1.35890 which previously served as resistance before being overcome earlier this week. Below this zone, the next key support lies near 1.3570 and then the 20-day EMA around 1.3560. A decisive break below these levels would shift momentum toward bearish territory for GBP/USD.
The broader technical outlook remains bullish as long as price maintains position above the 1.3490 level, which represents a key breakout point from earlier consolidation patterns. The weekly chart confirms that an uptrend is in place since the August low near 1.3140, with higher lows and higher highs forming consistently throughout this period.
Fundamental Drivers: Policy Divergence Creates Opportunity
The current GBP/USD rally has been driven by a clear divergence between Federal Reserve policy expectations and Bank of England stance on interest rates. While the Fed is widely expected to cut rates at its upcoming meeting, the BoE appears committed to holding rates steady amid persistent inflationary pressures in UK economy.
US Federal Reserve Meeting: The Immediate Catalyst
The US Federal Open Market Committee (FOMC) will announce its monetary policy decision on September 17th with markets pricing a 94.2% probability of a quarter-point rate reduction to the range of 4.00%-4.25%. This expectation has created significant downward pressure on the US Dollar across major currency pairs, including GBP/USD.
Key factors supporting this dovish Fed shift include:
- The recent increase in unemployment claims from July's previous level
- Evidence of weakening labor market conditions that suggest a deterioration requiring policy support
- Persistent concerns about the pace of economic growth following tariff impacts and potential slowdowns
While the Fed is expected to cut rates, this decision has already been largely priced into markets. What will determine GBP/USD's immediate direction is whether the central bank adopts a more dovish tone than anticipated during its post-meeting press conference on September 17th at 6:30 PM GMT.
Bank of England Policy Decision and Inflation Context
The Bank of England has signaled increased caution regarding interest rate cuts, with Governor Andrew Bailey highlighting "downside labor market risks" during recent comments. This position directly contrasts with the Fed's expected easing path but is consistent with UK inflation remaining above target.
UK headline inflation rose to 3.8% in July (from June's 3.6%), well above the BoE's 2% target, while core inflation also climbed to 3.8%. The August CPI report will be released on September 17th and is forecasted to remain steady at 3.9%, providing crucial context for the Bank of England's policy decision scheduled for Thursday.
The UK labor market data published earlier this week showed wage growth accelerating slightly, with average hourly earnings including bonuses rising at a year-on-year pace of 4.7% compared to June's 4.6%. Unemployment held steady at 4.7%, but job vacancies declined for the 38th consecutive month, signaling continued weakness in labor demand.
These data points reinforce the BoE's stance that further rate cuts are premature and may delay any easing until November or later. This policy divergence between the central banks has been a key driver of GBP/USD strength as markets price out different paths for monetary policy across the Atlantic.
Forthcoming Events: Critical Data Releases
The week ahead offers several pivotal events that will likely determine whether GBP/USD can extend its current bullish momentum or face correction. Market participants are currently balancing expectations of Fed easing against BoE caution, making these upcoming releases particularly consequential for the currency pair.
UK Inflation Data: The Crucial Pre-BoE Decision Release
The August Consumer Price Index (CPI) report scheduled for release on September 17th at 12:30 PM GMT will be a major market-moving event. This data is crucial as it directly informs the Bank of England's upcoming monetary policy decision, which occurs just one day later.
Market expectations point to headline inflation remaining elevated around 3.9%, with underlying measures potentially showing modest improvement toward the BoE target level. A stronger than expected reading could reinforce the central bank's caution and support further GBP/USD gains, while a significant drop in prices might prompt rate cut speculation that would weaken the pound.
Given that inflation remains well above target despite persistent wage growth, any indication of cooling price pressures will be closely analyzed for its implications on future BoE policy timing. This report is likely to determine whether markets increase bets on November rate cuts or maintain their current stance against imminent easing from the Bank of England.
US Retail Sales: Early Context for Fed Policy
The US retail sales data released at 12:30 PM GMT on September 16th showed a modest improvement with figures rising by 0.4% month-over-month, exceeding forecasts but falling short of the previous reading's strength. This relatively positive indicator comes ahead of the Fed meeting and is interpreted as consistent with ongoing economic resilience that might temper expectations for aggressive rate cuts.
However, this data point has already been priced into markets given its release timing before the central bank decision. The focus will shift to whether subsequent US unemployment claims figures (scheduled for September 18th) reveal further labor market weakness or stability as indicators of economic health ahead of the Fed's policy announcement.
Outlook: Bullish Momentum with Critical Thresholds
The current bullish trend in GBP/USD has strong technical and fundamental support, but several critical levels must be confirmed for this momentum to continue. Market participants should monitor both immediate price action against key resistance zones as well as the broader context of central bank policy divergence.
Bullish Scenario: Breaking Through Resistance
A decisive break above 1.3650 would signal that bulls have gained control over this critical threshold, potentially opening a path toward testing previous highs near 1.3787 and ultimately the weekly high of 1.3840. This scenario is most likely if:
- The US Federal Reserve adopts an unexpectedly dovish tone during its press conference
- UK inflation data comes in stronger than expected, reinforcing BoE caution
- US unemployment claims exceed forecasts on September 18th, signaling further labor market weakness
In this scenario, GBP/USD could potentially reach the monthly high of 1.3790 before facing a more significant resistance zone near 1.4004—a level that represents a key technical target from previous trading ranges.
Bearish Scenario: Consolidation or Reversal
If GBP/USD fails to clear the immediate resistance at 1.3650 and retreats toward consolidation below 1.3620, this would indicate that current bullish momentum is overstretched without sufficient fundamental support from upcoming data releases. A break below key moving averages could trigger a deeper correction toward the weekly low of approximately 1.3570.
This scenario may unfold if:
- UK inflation prints significantly lower than forecasted, suggesting easing pressure
- The Fed signals more aggressive rate cuts than expected during its press conference
- Sustained US Dollar strength emerges following stronger-than-anticipated economic data
In this case, GBP/USD could test the 1.3500 psychological level with a potential return to the descending channel that had previously contained price action before being broken earlier in September.
Strategic Implications for Traders
The current market structure suggests an opportunity exists for traders seeking long positions on GBP/USD, but careful attention must be paid to key technical levels and upcoming data releases. The pair's position relative to the 1.35890 resistance level remains particularly critical in determining short-term direction.
For those maintaining existing positions:
- A break above 1.3620 would signal a confirmation of bullish momentum, warranting strategic adjustments upward
- Failure to hold this key zone with subsequent price action could indicate exhaustion and potential downside correction
- The psychological level at 1.35890 remains a crucial reference point for trend direction on the daily chart
For new entries:
- Limited opportunities exist near current levels, but breakout positions above 1.3620 could be considered with appropriate risk management
- Supporting trades below 1.3589 should only be undertaken with clear confirmation of bullish momentum resuming after any potential pullback
- The upcoming UK inflation data on September 17th represents a major opportunity for directional entries based on the outcome
Moving forward, traders should focus closely on how both central banks frame their policy outlooks during press conferences. The Fed's commentary will be particularly important in determining whether dollar weakness is sustainable or if further USD strength could emerge to challenge GBP/USD gains.
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