GBP/USD – Smart Money Analysis: The Pound Remains Under Pressure

The GBP/USD pair was in near free fall for eleven days, but for the past three weeks, the bulls have been putting up desperate resistance against the bears, preventing them from advancing further. Any corrective rebound is blocked by bearish Imbalance 30, which acts as a resistance zone. As a result, a local range has formed in GBP/USD. Despite rising inflation in the UK, which reinforces the Bank of England's hawkish stance, despite a highly probable interest rate hike at the next meeting, and despite stronger-than-expected economic growth in the second quarter, bullish traders have seen no reason to launch an advance for more than a month. However, compared with the euro's decline, the pound's situation does not look hopeless. Today, there were hopes that the U.S. inflation report would fail to support the dollar, as the market had already priced in at least one more rate hike in 2026. However, the bears used even a formal pretext to open new positions. Inflation increased, meaning the FOMC's stance became more hawkish.

It is worth noting that traders expect the Bank of England to tighten monetary policy two or three times, while the Fed is expected to tighten only once. The dot plot also points to one policy tightening, and the latest FOMC minutes confirmed that most central bank officials expect just one rate hike. Of course, what will happen in 2027 remains unknown, but this is the current consensus forecast, based on the average projections. Thus, the Bank of England could ultimately raise interest rates more than the Fed over the coming months, which clearly should not support further gains in the U.S. dollar. Yet the pound cannot even manage a corrective rebound.

If the Fed had not decided to raise interest rates in September and signaled its willingness to continue tightening monetary policy, the expectation would still be for the U.S. dollar to decline. That expectation remains, but the anticipated decline is now expected to begin from lower levels. However, the bulls' opportunities are now limited to a liquidity sweep below the July 28 or June 24 lows, as well as the formation of new bullish patterns, which would require a sustained upward move. The chart clearly shows that most reversals over the past year occurred following liquidity sweeps, which, in my view, presents a good opportunity. The reaction to bearish Imbalance 30 has been weak so far, which may indicate that bearish momentum is fading. This could provide an opportunity for the pound. A small one, but an opportunity nonetheless. However, there are currently no bullish patterns or signals.

Do the bears have further room to advance? In my view, their potential is limited, but it must be acknowledged that the dollar remains in a favorable phase and has excellent prospects for further gains until Imbalance 30 is invalidated. Technical analysis shows that the picture remains entirely bearish following the liquidity sweep above the May highs. The pound reacted to bearish Imbalance 27, triggering a 320-point decline. Now, bearish Imbalance 30 offers grounds to expect further losses for the pound.

The economic news flow on Wednesday supported the bears, who resumed their advance after a three-week pause. The bulls are retreating once again, although the likelihood of more aggressive Fed monetary tightening has hardly increased today, despite U.S. inflation rising above market expectations.

Overall, the fundamental backdrop remains such that, over the long term, a decline in the U.S. dollar is the only outcome that can reasonably be expected. The war between Iran and the United States has not changed that outlook. Geopolitical developments prompted the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its most acute phase. The future path of FOMC monetary policy remains uncertain, yet the market continues to anticipate further tightening, which is the main reason for the bears' confidence. However, traders continue to overlook the prospect of monetary policy tightening by the Bank of England, as evidenced by several recent speeches from Monetary Policy Committee (MPC) members. Inflation in the UK is rising, as it is around the world, leaving the Bank of England with little choice but to raise interest rates as well.

Economic Calendar for the United States and the United Kingdom:

On October 15, the economic calendar contains five entries, none of which stand out as particularly significant. The impact of economic news on market sentiment on Thursday may be limited.

The long-term outlook for GBP/USD remains bullish. The bears have controlled the market in recent weeks, but the range is clearly visible on the daily chart. A liquidity sweep above the May 1 swing high triggered a new decline within the horizontal range, while a sell signal within the inverted Imbalance 27 extended that decline. Thus, the pound could resume falling toward the June low. Liquidity could then be swept below that low, potentially followed by a reversal in favor of sterling. The reaction to Imbalance 30 remains weak at present, and this is where the pound's main opportunity lies. However, traders need more than a weak reaction to a bearish pattern during a bearish impulse before they can reasonably expect an upward move. The pound and the bulls need a structural break—or at least the invalidation of Imbalance 30.