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Pound Sterling is in an uptrend against the Dollar, but some consolidation at lower levels is now necessary.
The Pound to Dollar exchange rate (GBP/USD) saw its uptrend reassert in a convincing manner last week, resulting in the printing of a new three-year high at 1.3770.
Gains are exclusively the result of another widespread selloff in the Dollar, which has been coming under notable pressure in 2025 as the U.S. 'exceptionalism' trade - i.e. buy all things America - is reevaluated under the significant changes brought on by President Donald trump.
In fact, 2025 threatens to be the worst single year for the Dollar since the collapse of the Bretton Woods exchange rate system in 1973.
"Unless there’s a bounceback by Monday, the dollar looks set to end the first half with its worst performance since the Bretton Woods fixed exchange-rate system collapsed in 1973." - Karl Schamotta, Corpay.
This speaks of strong forces working against the Dollar, which is lifting everything else, including the Pound.
Based on this alone, we cannot rule out fresh highs in the coming week above 1.3770. However, our Week Ahead Forecast model is a rules based one, and it says some pullback is required given some signals that warn of overbought conditions.
Most notably, the Relative Strength Index (RSI) hit 70 last week, which is the official level at which a financial asset can be considered overbought. Also, GBP/USD was testing the outer Bollinger band on the daily timeframe, which also speaks of overbought.
GBP/USD has deviated from its nine-day exponential moving average (EMA), and because it tends to mean revert back to this level, a pullback is now necessary, putting a retreat to 1.3650 in scope for the coming days.
Above: GBP/USD at daily intervals with Bollinger bands shown.
Giving some fundamental credence to the GBP/USD pullback narrative are a number of events that have happened recently that should be positive for the Dollar.
The U.S. and China last week finalised details required to implement the trade accord reached last month in Geneva. "We just signed with China yesterday," U.S. President Donald Trump said at the White House on Thursday night.
Commerce Secretary Howard Lutnick also said agreements with 10 major trading partners were at hand, meaning the market doesn't have to worry about a severe 'cliff edge' on July 09 when the U.S. is to implement the tariffs it announced on April 02.
U.S. politicians are meanwhile set to remove the 'revenge tax' from Trump's One Big Beautiful Bill. The 899 section of the bill would have authorised the U.S. Treasury to impose up to a 20% tax on passive income - such as dividends, interest, and royalties - earned by foreign investors from countries identified as having "discriminatory" tax regimes against U.S. firms.
The bill was a big red flag to foreign investors that contributes to the 'Sell America' trade that has weighed on the Dollar this year.
So there has been some good news for the Dollar of late, which combined with the significant short positions that have stacked up against it, speaks of the potential for a USD rebound at some point.
The next important U.S. data release is the June manufacturing ISM PMI survey, due on Tuesday. Based on regional manufacturing surveys published so far this month, the ISM likely remained weak under 50%.
As it is a new month, the U.S. labour market will also be in focus this week, including the non-farm payrolls report on Thursday.
Here, the headline is expected to be 100K additional jobs created in June, with the unemployment rate edging higher to 4.3% from 4.2%.
Markets are waiting for clearer evidence that tariff uncertainty is weighing on the U.S. jobs market, which would allow the Federal Reserve to cut interest rates as soon as next month.
With interest rates said by some analysts to be increasing in importance for FX markets again, this would weigh on the Dollar.