The pound’s weekly decline saw a slow down at an unprecedented peak on Wednesday, although the trading behavior was somewhat peculiar as the June inflation figures provided strong evidence for sellers. GBP/USD initially touched the 1.3350 level during early New York trading, its lowest point in a week, but has since landed between that low and an approaching moving average band just under 1.3400. This marks its fifth consecutive day of decline, albeit measured in single-digit pips.
Price data calms the problem of price increases
The National Bureau of Statistics reported that the Composite Consumer Price Index (CPI) inflation rate in June was 2.6% year-on-year, versus a consensus of 2.7%, down from 2.8% in May. This is the lowest annual rate we’ve seen since March 2025. Services inflation also eased slightly to 3.6% from 3.7%, with only a minor monthly increase of 0.1%. Most of the downward adjustments were in transport and food, areas that were expected to see price rises due to military disruptions.
Despite the downtrend not solidifying just eight days ahead of the Bank of England’s (BoE) meeting on July 30, chatter about potential short-term interest rate hikes has resurfaced. The market is anticipating one more increase to 4.00% in the near future. The remnants of wartime panic briefly adjusted three prices, pushing some effects further out into the curve according to the June report. The only complicating factor here is core inflation, which holds at 2.6%, slightly above the 2.5% consensus, which complicates the situation a bit.
A slow fall is not a floor
The behavior of price trends offers a somewhat confusing narrative. The only significant rally of the session followed a period of weakness, coming up just short of the 1.3400 mark before sellers regrouped during the London morning session. This dynamic fits the pattern of a market that was active before the announcement. Sterling saw its most significant drop on Tuesday, but after the cooling payroll numbers hinted at a theme, there wasn’t much in the way of fresh selling once confirmation came in.
This means the downturn could be interpreted as fatigue hitting against resistance rather than the start of a stable base. Wednesday’s price range was about 40 pips, caught between a support level that has already been tested and a moving average that the market has struggled to recover from. Plus, the daily candlestick showed a lull just when buyers needed a revival.
On another front, the dollar has been quietly gaining ground. The U.S. government conducted 11 consecutive attacks on Iran, with President Trump imposing retaliatory measures for each tanker attacked in the Strait of Hormuz. Consequently, oil prices reached a one-month high. In this environment, risk currencies continue to react weakly in comparison to the US dollar, with the pound leading the downturn.
Political developments also influenced the scenario, with Andy Burnham’s government taking shape and John Healy being appointed to the Treasury. His initial inflation report as chancellor was well-received, but the fiscal plan that will test the gold market’s patience is still unwritten, leaving some uncertainty regarding the pound’s political credit rating.
Friday holds the rest of the week
Thursday looks light, with U.S. unemployment claims expected around 212,000 as of 12:30 GMT. Additionally, GfK’s July Consumer Confidence Survey is slated for release at 23:01 GMT, with a consensus of -21, indicating a potentially improving household sentiment amidst economic contraction. But Friday could prove crucial for the pound. Retail sales for June will be published at 06:00 GMT, and after a 1.2% increase in May, the consensus is a decline of 0.3% month-on-month, alongside a year-on-year drop expected from 3.2% to 2.3%.
The Composite Index began the month at 49.3, while the Services Index stood at 48.8. Preliminary PMI figures, coming at 08:30 GMT, remain below the 50.0 mark, and any further decline would stir discussions of an economic slowdown right before the Bank of England meeting. The U.S. will respond with its own preliminary figures at 13:45 GMT, expecting manufacturing around 54.5, serving as a reminder of the growth gap that quietly impacts the dollar. Altogether, these elements represent a final set of inputs ahead of next week’s key events: the Federal Reserve on Wednesday and the Bank of England the following day.
Technical image of pound
Resistance: The converging 50-day and 200-day exponential moving averages (EMAs) sit just under the 1.3400 mark, with Wednesday’s attempt at recovery ending just below that band. Beyond that level, mid-July’s peak of around 1.3550 will be the next structure to watch.
Support: The recent low is around 1.3350, which was hit on Wednesday, establishing it as the initial downside target based on Tuesday’s assessment. Following that, levels at 1.3300 and then a summer base around 1.3150 loom.
Bias: Bearish sentiment is noted below the 1.3400 handle. If the 1.3350 level is consistently surpassed, 1.3300 will be next in line. The daily stochastic relative strength index will also indicate a reversal from being overbought. Conversely, if the daily closing price exceeds 1.3400, the downside outlook will lose its validity.
