Pound Holds Ground Amid Fiscal and Data Watch

Key Takeaways:

*Sterling steadied, supported by the resilient banking sector and BoE’s decision to hold the countercyclical capital buffer at 2%.

*UK fiscal worries grow, with Reeves’ £4.8B welfare plan fueling gilt selloff and lifting 10-year yields to 4.63%.

*GBP awaits GDP data for direction, as signs of recovery could reinforce BoE’s cautious stance, while weak data may revive rate-cut bets.

Market Summary:

The British Pound has stabilized near the 1.3600 level against the U.S. dollar, with sentiment supported by resilient domestic banking conditions and cautious optimism ahead of key economic data. Despite persistent volatility in UK gilt markets—driven by rising fiscal concerns—Sterling has found a floor as investors recalibrate expectations around Bank of England policy and global risk trends.

The UK fiscal outlook remains a point of contention. Chancellor Rachel Reeves’ proposed welfare reforms, expected to increase public expenditure by £4.8 billion through 2030, have sparked renewed fears over sovereign debt sustainability. This has pushed the 10-year gilt yield to 4.63%, raising concerns about long-term debt servicing costs. However, the BoE’s decision to maintain its Countercyclical Capital Buffer at 2% underscores policymakers’ confidence in the financial system’s resilience, offering some support to Sterling in the face of rising bond yields.

Externally, Trump’s tariff threats—particularly a proposed 50% tax on copper—have stoked inflation concerns, but the UK’s limited trade exposure to the U.S. may cushion the blow. In this context, the upcoming UK GDP release on Friday will be closely watched. A bounce from April’s -0.3% contraction could reinforce market expectations for BoE policy patience, while a downside miss may reignite speculation around potential easing later this year.

In the near term, GBP/USD is likely to remain flatten, with directional cues driven by UK macro data, the evolving global trade landscape, and signals from the BoE. While upside potential is capped by fiscal headwinds, Sterling retains relative resilience due to the central bank’s cautious hawkish stance and limited trade exposure compared to peers.

Technical Analysis

GBPUSD, H4

GBP/USD remains under mild pressure, hovering near the 1.3600 handle after failing to reclaim the descending trendline resistance from late June. The pair is trapped in a tightening range, with support emerging near 1.3535, and resistance capped around 1.3650. Price action suggests ongoing indecision as traders weigh mixed UK data against broader dollar dynamics.

The Relative Strength Index (RSI) has stabilized near 48, reflecting a lack of strong directional momentum. While not yet in bearish territory, the indicator continues to trend below its midline, suggesting that bulls have yet to regain control.

The MACD offers a neutral-to-slightly bearish read. The MACD line and signal line remain flat just below the zero threshold, with minimal histogram movement. This points to weak momentum and a lack of conviction on either side.

From a structural perspective, GBP/USD appears vulnerable to further downside unless buyers can break above the descending trendline near 1.3650. A clean move above that zone could shift momentum toward the 1.3760 resistance. Conversely, a break below 1.3515 would open the door for deeper losses toward 1.3420 and the broader ascending trendline from the end of June.

Resistance Levels: 1.3650, 1.3760

Support Levels:1.3535, 1.3420