GBP/USD Outlook

30/07/25

Over the past year, the British pound has appreciated significantly against the U.S. Dollar. Cable climbed from the mid-$1.20s in late 2024 to a near four-year high around $1.385 on July 1st. Since then, GBP/USD has moderated, settling in the mid-$1.30s by late July 2025. This price action reflects a structurally stronger Pound but also a broadly weaker Dollar. Notably, Sterling’s strength has been relative: its gains against the Dollar outpaced those versus other currencies, suggesting the move has been primarily driven by U.S. Dollar weakness rather than exceptional Pound outperformance.

GBP/USD 1D Chart

Drivers Behind the Strong Pound and Weak Dollar

Several macroeconomic and geopolitical forces have underpinned the Pound’s strength against the Dollar. On the UK side, persistently high inflation kept the Bank of England in a hawkish posture. While other central banks pivoted to rate cuts amid cooling inflation, the BoE has maintained elevated interest rates throughout much of the year. This yield differential supported Sterling by offering relatively attractive returns for GBP-denominated assets.

UK inflation has remained sticky: headline CPI fell from double digits in 2022 to 3.4% by May 2025, but core inflation remained stubbornly elevated, making the UK the G7 economy with the highest price growth. This discouraged early easing from the BoE and kept rate expectations elevated, reinforcing the Pound.

By contrast, U.S. inflation decelerated more rapidly, approaching the Fed’s 2% target by mid-2025. This has allowed the Federal Reserve to adopt a more dovish tone, and market participants have begun pricing in several rate cuts. Consequently, the yield spread has narrowed in favour of the Pound, further weighing on the Dollar.

Geopolitics and Global Risk Sentiment

Geopolitical tensions in late 2024 – including a flare-up in Middle East conflict and heightened U.S.-China tensions – triggered a temporary flight to safety. Investors shed risk assets and moved into traditional safe havens, notably the U.S. Dollar, sending it sharply higher. However, these gains were short-lived.

By early 2025, as those crises eased and worst-case outcomes were avoided, risk sentiment rebounded. Middle East tensions remained contained, and U.S.-China frictions de-escalated. As global uncertainty receded, safe-haven demand for the dollar began to unwind.

At the same time, attention shifted to Europe’s economic resilience. The Euro area entered 2025 in better-than-expected shape, with growth stabilising and inflation rapidly declining toward the ECB’s 2% target. The ECB paused its rate cuts and maintained a relatively steady policy stance, supporting confidence in the Euro.

The Euro has climbed steadily as investors turned more optimistic on Europe’s fiscal and economic outlook—particularly amid discussions of increased German spending. This Euro strength spilled over to Sterling, given the UK’s close economic ties to the continent. GBP/USD was buoyed by a combination of reduced demand for the Dollar and positive momentum in European currencies.

In sum, as global risk appetite improved and safe-haven flows reversed, investors have rotated away from the Dollar and back into higher-yielding, undervalued currencies. This macro backdrop – coupled with strong UK rate differentials and supportive European trends – has contributed to sustained Pound strength and a broad weakening of the U.S. Dollar.

Technical Outlook

From a technical perspective, GBP/USD remains in an established uptrend, although it is currently undergoing a corrective pullback. Price action has so far respected key support levels, suggesting the trend may remain intact.

The pair recently tested the 1.3350–1.3425 support zone, including the 100-day exponential moving average, 1.33, and bounced back, indicating that buyers are still active at these levels. The corrective move appears healthy within the broader bullish structure.

Momentum Indicators

RSI (14) on the daily chart is currently near 55, indicating neutral-to-bullish momentum. The fact that RSI has held above 50 during the pullback suggests this may be a consolidation phase rather than a trend reversal.

On the weekly MACD, however, a bearish crossover has recently occurred, with the MACD line crossing below the signal line. This may be an early warning sign of waning bullish momentum. If confirmed by further downside in price and histogram deepening, it could mark the beginning of a broader correction.

GBP/USD 1W Chart

Key Levels

Support:
– 1.3425 (prior September 2024 high, now retested as support)
– 1.3350 (horizontal support and near the 100-day EMA)
– 1.3300 (psychological and structural support; a close below this would challenge the uptrend)

Resistance:
– 1.3525 (recent rebound high from mid-July)
– 1.3600 (psychological level; also possibly forming a right shoulder in a developing reversal pattern)
– 1.3740–1.3780 (year-to-date highs and multi-year resistance zone)

Summary

While GBP/USD has pulled back from its July highs, the broader uptrend remains structurally intact above 1.33. Short-term momentum has cooled, but long-term moving averages continue to support the bullish case. Investors will closely monitor whether the pair can maintain support and reclaim higher ground — or whether the recent MACD crossover signals a deeper correction ahead.

Overall, with supportive fundamentals and solid technical structure, the Pound remains poised to resume its rally if the corrective phase proves temporary.

This article is intended for general information purposes only and reflects the market environment at the time of writing. It does not constitute investment advice, a personal recommendation, or an offer to engage in any trading activity. The content does not take into account individual objectives or circumstances and should not be relied upon as the basis for any investment decision. Past performance is not a reliable indicator of future results.

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