FX.co ★ GBP/USD – Smart Money Analysis: UK Economy Offers Limited Grounds for Optimism

The GBP/USD pair continues to rise, which I consider entirely logical. Reports on the U.S. economy, labor market, and inflation have put an end to the debate over whether the FOMC will raise interest rates in September. Nonfarm Payrolls declined for the fourth consecutive time and fell below zero. The U.S. economy is slowing. Inflation is declining. The situation may change over time, but at present, the FOMC is much closer to maintaining a wait-and-see stance than to making hawkish decisions. In recent weeks, the market has been actively circulating speculation that high inflation would force the Fed to raise rates. Kevin Warsh also spoke about excessive inflation that needs to be brought back to the target level. However, as expected, inflation is not the only factor that matters to the regulator. The labor market is no less important to the FOMC, and its current condition cannot be ignored. Overall, the Fed's policy situation in August has become increasingly challenging. Tightening monetary policy is not possible because the economy and labor market would cool even further. But neither can the Fed simply wait, because inflation could begin accelerating again. Donald Trump is unwilling to make concessions to Iran, while Iran sees no need to negotiate anything with Trump. The conflict continues, the blockade of the Strait of Hormuz remains in place, and autumn begins in three weeks. An energy crisis just a few months before the start of winter is exactly what is needed.

As I have already noted, geopolitics is no longer having a positive effect on the dollar, as negotiations between the United States and Iran have become completely deadlocked. Officially, Tehran is negotiating only with Oman. It remains unclear what these negotiations will lead to in terms of ending the conflict and reopening the Strait of Hormuz. Iran may manage to agree on the terms of control over the Strait of Hormuz with Oman, but how would that resolve the conflict with the United States and lift the U.S. blockade of the strait?

In the first half of the week, oil rose to $92 per barrel. If the situation begins to develop according to the most pessimistic scenario, oil will continue to rise and retest the March–May highs. In this case, inflation in the United States or the United Kingdom will begin accelerating again. If the situation develops according to the optimistic scenario, oil prices will return to the $60–70 per barrel range. In that case, the Fed may not need to tighten monetary policy, while the Bank of England is already not burdened by the problem of high inflation. However, at present, it is the Fed that cannot bring itself to take a hawkish step, while the Bank of England, on the contrary, is ready to tighten monetary policy if inflation begins to accelerate, although there are currently no signs of this.

The chart analysis shows a new bullish advance. At present, traders have two bullish imbalances (24 and 25) that can be considered for buying opportunities. Imbalance 24 has already generated a bullish signal that traders could have acted on. There are currently no bearish patterns. No liquidity sweeps have occurred recently.

The economic backdrop on Thursday could have created problems for the pound, but it could also have provided support. In the end, neither occurred. The UK GDP report for the second quarter was slightly better than forecast, while the UK industrial production report for June was slightly worse than market expectations. The U.S. Producer Price Index was of no significance the day after the inflation report was released.

The overall fundamental backdrop remains such that, in the long term, I see no scenario other than a decline in the U.S. currency. The war between Iran and the United States has changed nothing in this regard. The possibility of Fed rate hikes in 2026 has not changed this either. Geopolitical developments prompted the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its active phase. The chances of FOMC monetary policy tightening have declined significantly in recent weeks, putting pressure on the U.S. currency. Thus, in my view, any rise in the dollar is temporary and driven by short-term factors. I see no reason for a new bearish advance.

News Calendar for the United States and the United Kingdom:

• United States – Change in retail sales (12:30 UTC).
• United States – University of Michigan Consumer Sentiment Index (14:00 UTC).

On August 14, the economic calendar contains two entries, neither of which is particularly significant. The impact of the economic backdrop on market sentiment on Friday may be weak, including in the second half of the day.

GBP/USD Forecast and Trading Tips:

The long-term outlook for the pound remains bullish. After liquidity sweeps of the two most recent swings, the bulls began an advance, followed by a corrective pullback and a new bullish attack. In the near term, I expect the pound to continue rising, as the probability of FOMC monetary policy tightening is currently extremely low. If the bears launch a new advance, bearish patterns will be needed for short positions, but there are currently none. The bulls received a buy signal from Imbalance 24, which remains valid. The targets for the pound's rise are the highs from July 15 and May 1 at 1.3557 and 1.3656, respectively, with the first target having already been almost reached. The 1.3557 swing should be monitored closely, as a liquidity sweep could occur there. If this happens, the pair may experience some decline.