GBP/USD Undervalued at 1.3650 as Sterling Eyes 1.3790 Breakout

GBP/USD Struggles to Extend Rally Despite NFP Beat and Tariff Uncertainty

The British pound (GBP/USD) has entered a volatile holding pattern near 1.3660, weighed down by conflicting macro currents and heightened political sensitivity in both the UK and U.S. Despite a modest recovery from its recent slide, the currency pair shows signs of exhaustion just under 1.3670 resistance—a level that has capped multiple rallies this week. A decisive break above this ceiling has failed to materialize, as dollar strength returns post-NFP and UK fiscal concerns regain market focus.

UK Political Stability Fails to Ignite Bullish Momentum in Pound

The confirmation that Chancellor Rachel Reeves will retain her role brought a temporary calm to gilts and GBP/USD. However, investors remain skeptical of the UK’s fiscal trajectory. The ruling Labour Party's U-turn on welfare reform, combined with an evaporating budget headroom, now positions Reeves to potentially raise taxes in the autumn budget. This would act as a deflationary impulse, forcing the Bank of England into rate cuts earlier than expected. The bond market priced this shift aggressively, sending yields higher midweek before stabilizing.

US Labor Market Strength Caps GBP/USD Upside

Friday’s stronger-than-expected U.S. Nonfarm Payrolls report—147,000 jobs added vs. 110,000 expected—briefly pushed the dollar index (DXY) to 96.93, although wage growth of just 0.2% helped prevent a deeper pound selloff. U.S. unemployment fell to 4.1%, and jobless claims dipped to a six-week low at 233,000. These numbers lifted Treasury yields to 4.34% on the 10-year, but rate cut expectations remained steady given wage softness. Still, dollar demand remains robust, suppressing any momentum for GBP/USD to mount a sustained breakout.

Trump’s Tariff Agenda Reintroduces Global Risk-Off Pressure

Donald Trump’s declaration that the U.S. will begin sending tariff letters—targeting 10 countries at a time, with proposed rates between 20% and 70%—has injected uncertainty across FX markets. GBP/USD’s sensitivity to global trade sentiment reemerged as traders braced for the July 9 tariff announcements. The renewed "sell America" narrative isn’t helping the pound either, given its exposure to global capital flows and its reliance on rate differentials for support.

Technical Setup: GBP/USD Coils Below Symmetrical Triangle Breakout

GBP/USD is trading near the upper boundary of a symmetrical triangle on the 1-hour chart, holding above both the 50 EMA (1.3664) and 200 EMA (1.3656), yet failing to break higher. A decisive close above 1.3680 could initiate a bullish surge toward 1.3732 and 1.3789, while failure to hold could drag price down to 1.3611 or even 1.3562. RSI shows neutral momentum, and MACD remains flat—implying a lack of conviction from either buyers or sellers.

BoE Policy Expectations Now Hinge on Reeves’ Fiscal Hand

Markets are currently pricing in two more BoE cuts by year-end, but this could be brought forward if Reeves is forced to hike taxes. That scenario would demand policy easing to prevent a sharp contraction. The central bank faces a credibility dilemma—committing to rate cuts into fiscal tightening risks reigniting inflation. Yet doing nothing could derail fragile growth. This macro dilemma is directly translating to the lack of conviction in GBP/USD.

DXY Trends Cap Sterling Rebound As Triangle Structure Tightens

The U.S. Dollar Index (DXY) is trading below both the 50 EMA (96.94) and the 200 EMA (97.28), signaling macro fragility. But as long as it holds the 96.80 support, bulls have a path to 97.42 and 97.76. A fall below 96.10 would remove tailwinds for USD bulls and finally give GBP/USD a clearer path above 1.37. Until then, the currency pair remains at the mercy of tariff risk and rate expectations.

BUY/SELL/HOLD VERDICT: NEUTRAL HOLD – PATTERN COILING, AWAITING TRIGGER

GBP/USD sits at a macro crossroad with near-term price action defined by triangle consolidation and major resistance at 1.3680. Unless Trump’s tariff shock is smaller than feared or Reeves avoids tax hikes, upside momentum will likely remain constrained. Keep exposure limited until post-July 9 clarity. Rating: HOLD. Upside Breakout Level: 1.3732. Downside Trigger: 1.3562. Macro Bias: Neutral to Slightly Bullish Pending Tariff Outcome.

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