GBP/USD Rebounds to 1.34 but Faces Stiff Resistance

GBP/USD Price Rebounds From Lows but Faces Heavy Headwinds

The GBP/USD pair staged a modest recovery after falling to four-week lows below 1.3350, climbing back above 1.3400 as risk appetite briefly returned to global markets. Sterling’s rebound coincided with weaker U.S. labor data, fueling bets on a September Federal Reserve rate cut. Yet despite this bounce, the pair remains stuck near critical levels, with traders cautious ahead of central bank meetings in both London and Washington.

Sterling’s Reaction to BoE and Retail Sales Data

UK retail sales offered the pound some support, climbing 0.6% month-on-month in July against forecasts of 0.2%, driven by stronger demand in clothing and online retail. Excluding fuel, sales still advanced 0.5%. However, the Bank of England remains constrained. Services CPI is anchored at 5.0% year-on-year, far above the 2% target, leaving policymakers little room for aggressive easing even as growth lags. Governor Andrew Bailey’s cautious remarks on quantitative easing adjustment underlined this balancing act, with face-value losses on gilts estimated near £100 billion weighing on bond-buying discussions.

U.S. Jobs Weakness and Fed Rate Cut Bets Pressure Dollar

Dollar sentiment turned bearish after the Bureau of Labor Statistics reported just 22,000 new jobs in August, well below the 75,000 forecast, with the unemployment rate ticking up to 4.3%. The two-year Treasury yield tumbled, and the DXY dropped 0.70% to 97.57. Futures markets now fully price a 25 basis point Fed cut at the September meeting, with a 14% chance of a deeper 50 bps move. These expectations weakened the greenback across the board, allowing GBP/USD to reclaim the 1.34 handle and trim earlier losses.

Technical Levels Define the Battle for GBP/USD

Technically, GBP/USD is trading near its 50-day EMA around 1.3460, but upside momentum faces firm resistance at 1.3648/50, which aligns with the 2025 high-week close and a 78.6% retracement of the June decline. A breach above this zone would open the path to 1.3749 and even 1.4003 in an extended move. On the downside, support lies initially at 1.3434 and deeper at 1.3280–1.3315, where the July reversal low and 61.8% retracement converge. Should bearish pressure intensify, further targets emerge at 1.3092–1.3144 and 1.2948.

Market Sentiment, Liquidity, and Range-Bound Risks

Despite the recovery, Sterling remains vulnerable to renewed weakness. Elevated household savings and sluggish growth keep consumer spending subdued, capping GBP/USD upside. Meanwhile, leveraged positions are stacked around the 1.34–1.36 corridor, raising risks of false breakouts. Unless bulls force a daily close above 1.3650, the pair risks slipping back into a choppy consolidation range. Conversely, a decisive break above 1.3749 would confirm broader uptrend resumption and open the door toward the psychological 1.40 mark.

GBP/USD Outlook: Balancing Dollar Weakness and UK Inflation Stubbornness

Sterling’s recovery has been fueled more by dollar weakness than domestic strength. While U.S. labor softness accelerates Fed cut expectations, the Bank of England remains boxed in by sticky inflation and political pressure on debt financing. This divergence keeps GBP/USD at a crossroads. With resistance looming overhead and support zones layered below, the coming week’s U.S. CPI and UK economic prints will be decisive. For now, the pair trades as a battlefield between Fed easing bets and the BoE’s inflation fight, with markets eyeing 1.3650 as the breakout line.