GBP/USD Forecast: Sterling retraces from 3-year highs versus dollar

[Redator]

Currently trading at around ~1.34650, GBP/USD trades 0.32% lower in today’s session. Easing from multi-year highs made last week, cable continues to benefit from robust economic data and underlying dollar weakness.

GBP/USD: Key takeaways from today's trading

• Seeing convincing buying pressure in Friday’s session, GBP/USD recently rallied to highs of 1.35934, a level last seen in early 2022
• Recently easing from highs, markets now look to reassess rate-cut bets from the Federal Reserve and Bank of England, with BoE Governor Andrew Bailey expected to speak tomorrow

GBP/USD gains on US trade-tariff uncertainty

With Donald Trump renewing threats of US-EU tariffs over the weekend, continued uncertainty surrounding the US economy and future trade relations continues to weigh negatively on the dollar.

First threatening a 50% tariff on EU imports to be imposed June 1st, only to renege days later, frustrations in ongoing negotiations between the US and the European Union regarding trade further general ‘risk-off’ sentiment, and a general cautiousness on world equity markets.

The obvious comparison is that, unlike the United Kingdom, the United States has been unable to strike a deal with the European Union, with Trump taking a seemingly less diplomatic approach to negotiations.

While a list of trade negotiation deadlines loom, dollar upside is likely to be limited until the picture on global trade becomes clearer and, most importantly, more certain.

Better-than-expected retail sales extend GBP/USD gains

With last Friday representing cable’s best performance in over three weeks, gaining 0.89%, an unexpected rise in reported retail sales data helped boost cable pricing to three-year highs.

Beating expectations by some margin, Friday’s data showed retail sales data rising for the fourth consecutive month, suggesting increasing consumer confidence and somewhat vindicating the current Bank of England strategy on monetary policy.

The result has been a remarkable rise in sterling value versus the dollar.

US market holiday shines light on anti-dollar sentiment

With the US observing Memorial Day on Monday, lower-than-usual trading volumes did not deter GBP/USD from making further gains, ending the day 0.18% higher.

In a vacuum, this would suggest that the recent rise in GBP/USD pricing is not dependent on active US market participation, indicating that capital flows outside the US are at least somewhat influencing price action.

Markets eye Thursday speech for cues on BoE monetary policy

With this trading week noticeably sparse for UK-facing economic events, GBP/USD traders will closely monitor Bank of England commentary, which may suggest their likely next move.

While recent rises in retail sales would otherwise encourage the Bank of England to become more dovish, inflation in the United Kingdom remains uncomfortably high at 3.5% year-over-year in April.

Writing ahead of BoE Governor Bailey’s speech tomorrow, most predict rates will remain unchanged in the upcoming June decision.

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A chart showing the recent price action of GBPUSD. OANDA,TradingView, 28/05/2024

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GBP/USD technical analysis

• In line with Fibonacci retracements, we can expect GBP/USD to find some support at the current price. If price can stage a move upwards, bulls will likely target 1.36405, then 1.36798.

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