Sterling Holds Firm as Policy Gap with Fed Widens

Key Takeaways:

*Sterling supported by stronger Q2 GDP and BoE’s cautious stance.

*Policy divergence with the Fed keeps GBP/USD relatively firm.

*UK trade deficit and autumn budget risks may cap upside.

Market Summary:

The British Pound held firm near recent highs as a combination of solid domestic growth data, a cautious-yet-hawkish Bank of England (BoE), and improved global risk sentiment provided support. UK Q2 GDP expanded 0.3% QoQ, outperforming forecasts and driven by robust services and construction output, while June monthly GDP rose 0.4%. The data reinforced market expectations that the BoE will move more gradually on rate cuts compared to the Federal Reserve, with just 15 bps of easing priced in for the remainder of 2025 versus over 60 bps for the Fed.

Sterling also benefited from broader dollar softness following recent U.S. CPI and jobs data misses, though last week’s hotter-than-expected U.S. PPI (+0.9% MoM) briefly capped gains by reviving inflation concerns and tempering bets on a 50 bps September cut. The U.S. Dollar Index has since stabilized, with upcoming retail sales and Chair Powell’s Jackson Hole speech likely to be decisive for the next leg in GBP/USD.

On the geopolitical front, tentative easing in global trade tensions and a thaw in certain U.S.–Russia discussions have improved investor risk appetite, further supporting the pound. Still, structural risks remain—from the UK’s widening trade deficit (£9.2B in Q2) to potential fiscal tightening in the autumn budget—which may limit sustained upside. For now, the policy divergence narrative keeps Sterling better positioned than the euro, especially if upcoming UK inflation data surprises to the upside.

Technical Analysis 

GBP/USD, H4: 

GBP/USD is currently trading around 1.3539, pulling back slightly after testing resistance near 1.3580. This level aligns with previous consolidation zones, making it an important barrier for further upside. If buyers can break and sustain above 1.3580, the next resistance levels sit at 1.3680 and 1.3770. On the downside, immediate support lies at 1.3470.

The RSI at 60 has eased from near-overbought territory at 69, showing cooling bullish momentum but still holding above the neutral 50 level. This suggests there’s still some upside bias, but with reduced buying pressure.

The MACD is in positive territory but showing signs of convergence in which the histogram is shrinking, and the signal and MACD lines are getting closer. This hints at a possible short-term consolidation or mild pullback before the next move.

Resistance level: 1.3580, 1.3680

Support level: 1.3470, 1.3370