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Pound sterling is gunning for the 2025 highs against the U.S. Dollar.
It won't get there this week, but the path is certainly clear: the uptrend is playing out nicely, and the breach of resistance at 1.3592 certainly helps. The annotations in the below tell that particular story:
The Relative Strength Index (RSI) in the lower panel is pointing up and is positive, yet well below levels considered overbought.
We are also above the key moving averages, which gives a greenlight from a technical perspective at least.
The market is clearly running ahead of the midweek interest rate cut from the Federal Reserve, with traders trying to get their accounts topped up ahead of the decision itself.
This could suggest some profit taking occurs in the event itself. In fact we're building up for a classic 'sell the event' move here that sees GBP/USD pull back through the midweek session. (Get in touch with our dealing desk to set your order and avoid disappointment).
Is any midweek setback enough to kill the trend? No, but it could allow traders to enter long positions at better levels again.
Bear in mind the Bank of England will follow the Fed on Thursday, and Chris Turner, Global Head of Markets at ING reckons the decision should underpin Sterling's uptrend.
"For all the furore of Gilt yields hitting the highest levels since 1998 and the UK needing an IMF bailout, sterling has been performing quite well. Ever since the July US jobs report sealed a restart to the Fed easing cycle and a weaker dollar, sterling has been sitting in the top half of the table for G10 currency performance," he writes in a recent note.
The Bank of England has had to adopt a more cautious approach to cutting interest rates on account of inflation that continues to rise, and is in fact only expected to peak this month.
Also, last Friday's Bank of England inflation expectations survey made for sober reading: at no point in the next five years do Brits think inflation will fall back to 2.0%.
This means elevated inflation expectations are becoming entrenched, which ultimately suggests the public have lost faith in the Bank's ability to control inflation: Cutting rates into rising inflation runs completely counter to the reaction function that the public expects.
Some caution is therefore warranted from the Bank, and this could help Sterling-Dollar.
"For GBP/USD, we see the bearish dollar story dominating from October onwards and GBP/USD ending the year towards the top of the 1.32-38 range. We're cognisant of the big event risk around the 26 November UK budget, but expect the cleaner dollar bear trend to be the dominant factor at this point," says Turner.