The GBP/USD pair ended its seven-day winning streak during Wednesday's Asian session, retreating to around 1.3560. From a structural perspective, the pair is undergoing a technical correction after a strong rally, with bullish momentum easing slightly, though the overall upward trend has not yet reversed.
From a fundamental standpoint, the immediate cause of the pullback is a short-term stabilization in the U.S. dollar. Despite optimistic market expectations regarding easing tensions in the Middle East, with the U.S. and Iran preparing for a new round of talks ahead of a ceasefire deadline, overall risk sentiment has improved. However, the dollar, after a prolonged decline, is showing signs of a rebound. A slight recovery in the U.S. dollar index is exerting short-term pressure on GBP/USD.
Simultaneously, U.S. inflation data continues to influence market expectations for the policy path. The latest Producer Price Index (PPI) figures came in lower than expected, with a month-on-month increase of just 0.5%, significantly below the market forecast of 1.2%. The core PPI rose a mere 0.1% month-on-month, far below the expected 0.6%. Year-on-year, PPI stood at 4%, also below the 4.6% prediction. This data reinforces the view that inflation is cooling and reduces the necessity for further interest rate hikes from the Federal Reserve, thereby limiting the dollar's rebound potential.
Some market analysts note that the current dollar rebound appears more technical in nature, and its sustainability remains questionable without support from stronger economic data.
For the British pound, the influencing factors are more complex. On one hand, UK government bond yields have declined, with the 10-year Gilt yield falling to around 4.7%, which somewhat weakens the interest rate support for the pound. The drop in yields is partly attributed to falling oil prices, easing concerns about inflationary pressures and subsequently reducing expectations for aggressive rate hikes from the Bank of England. However, from a medium-term perspective, markets still anticipate approximately two more rate hikes from the BoE before 2026, implying that the pound's interest rate advantage persists. Furthermore, demand for UK government bonds remains robust; the latest 10-year bond issuance attracted bids of around £148 billion, indicating sustained confidence in UK assets, which provides underlying support for the pound.
In terms of market sentiment, the current environment is characterized by a combination of "improving risk appetite and a technical rebound in the dollar." While improved risk sentiment diminishes safe-haven demand for the dollar, the technical rebound offers it support, creating divergence in the GBP/USD price action.
Technically, on the daily chart, GBP/USD maintains its upward trajectory, having consecutively reached new highs, with the overall bullish structure still intact. However, near the 1.3600 psychological level, the pair faces clear resistance. A decisive break above this level could pave the way for a test of the 1.3700 area. Conversely, the 1.3400-1.3450 zone constitutes significant support; a break below this range could trigger a deeper correction. On the 4-hour chart, the pair is in a corrective phase following a rapid ascent, with short-term moving averages flattening, indicating weakened momentum. Momentum indicators show signs of declining, suggesting room for further near-term adjustment. A break below the 1.3500 support level could extend the correction towards 1.3450. Conversely, a move back above 1.3600 would likely see bulls regain control. Overall, the short-term bias is for consolidation within a higher range.
The GBP/USD pair is currently in a corrective phase following its recent advance, driven by a short-term dollar rebound and lower UK bond yields. However, fundamentally, the dollar lacks strong momentum for sustained gains, while the pound retains interest rate support, suggesting the medium-term uptrend is not reversed. In the short term, the pair may oscillate within the 1.35-1.36 range, awaiting new fundamental catalysts. The future direction will largely depend on evolving expectations for Fed policy and the path of UK inflation and interest rates. A renewed weakening of the dollar could provide room for further upside.