FX.co ★ GBP/USD – Smart Money Analysis: The Pound Remains Relatively Stable

GBP/USD spent eleven days in a near-freefall, but for the third consecutive week, bulls have been putting up strong resistance, preventing bears from extending their advance. Any corrective rebound is capped by Bearish Imbalance 30, which acts as a resistance zone. Bulls currently have little reason for optimism. Despite rising inflation in the UK, which reinforces the Bank of England's hawkish stance, the high likelihood of an interest rate hike at the next meeting, and stronger-than-expected economic growth in the second quarter, bullish traders see no reason to launch an advance. However, compared with the euro's decline, the pound's situation is not quite as unfavorable. This week's US inflation report could even support the British pound, as virtually any inflation reading has already been priced in through expectations for FOMC monetary policy. In other words, the market has already priced in at least one more rate hike in 2026, meaning the US dollar has already gained on this factor regardless of the actual inflation figure. However, bulls need to launch an advance for the pair to rise. There is no other way.

It is worth noting that traders continue to expect two monetary policy tightenings from the Bank of England, just as they do from the Federal Reserve. However, to reiterate, the Fed's dot plot indicates only one policy tightening, and the latest FOMC minutes confirmed that most policymakers expect just one rate hike. Therefore, the Bank of England could ultimately raise rates more aggressively than the Fed in the coming months, which would clearly not support further gains in the US dollar. Yet the pound has been unable to produce even a corrective rebound.

If the Fed had not decided to raise interest rates in September and signaled its willingness to continue tightening monetary policy, I would still expect the US dollar to decline. I continue to expect this outcome, but from lower levels. For now, however, the bulls' chances depend primarily on a liquidity sweep below the lows of July 28 or June 24, 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 after liquidity sweeps, which, in my view, presents a good opportunity. The reaction to Bearish Imbalance 30 has so far been weak, potentially indicating that bearish momentum is fading. This could provide an opportunity for the pound. A limited one, but an opportunity nonetheless.

Do bears have further downside potential? In my view, it is limited, but it must be acknowledged that the US dollar remains in a favorable position and has an excellent chance of extending its gains until Imbalance 30 is invalidated. The chart analysis indicates that the overall 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 is creating the conditions for a further decline in the British pound.

There was no significant economic news on Monday, which explains the relatively low level of trading activity. At the same time, the market has been trading in a range for more than two weeks, and neither bulls nor bears currently have a clear advantage. Although neither side has a decisive edge, bears retain the stronger outlook. Bulls have only managed to halt the pound's uninterrupted decline.

The overall news background remains such that, over the long term, I can only anticipate a decline in the US dollar, and that remains my expectation. The war between Iran and the United States has not changed my outlook. Geopolitical tensions prompted the market to refocus on 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 tightening, which is the main reason bears remain confident. However, traders are still overlooking 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

• United States — Existing Home Sales (14:00 UTC).

The economic calendar for October 13 contains no significant releases. The economic news background is therefore unlikely to affect market sentiment on Tuesday.

GBP/USD Forecast and Trading Recommendations

The long-term outlook for the British pound remains bullish. Bears have controlled the market in recent weeks, but the broader trading range is clearly visible on the daily chart. A liquidity sweep below the swing low of May 1 triggered a new decline within the horizontal range, while a sell signal within Inverted Imbalance 27 allowed the decline to continue. Thus, the pound remains in a downtrend that could extend toward the June lows. A liquidity sweep below those lows could then be followed by a reversal in favor of the British pound.

The reaction to Imbalance 30 remains weak, and this is where the pound's main opportunity lies. However, for traders to expect a sustained recovery, something more is needed than a weak reaction to a bearish pattern amid bearish momentum. The pound and the bulls need a break in the current structure—or at least the invalidation of Imbalance 30.