Sterling is on a tear right now. It led the G10 currencies yesterday with a 0.5% gain, and for August so far it’s the best performer of the bunch — up nearly 2.75%. The pound even tagged a fresh one-month high around 1.3590.
Stronger UK Growth (For Now)
The UK economy has been surprising to the upside, flipping sentiment from July. Q2 GDP came in at 0.3% vs. forecasts for just 0.1%. Not huge, but it’s growth at a time when many expected stagnation. June’s GDP print was even better, up 0.4%, vs forecasts of 0.2%.
Government spending helped offset weak consumer demand and falling business investment, while services and industrial output kept things afloat. Basically, the UK ended Q2 on better footing than most thought.
BoE: Not So Dovish After All
The Bank of England did cut rates, but the vote was close. Almost half of the Monetary Policy Commitee wanted to hold steady. This tells us they’re not in a rush to slash rates aggressively.
Markets are now pricing just a 65% chance of another cut this year, compared to nearly 100% before last week’s meeting.
That shift is a big deal. It tells traders that UK policy might stay tighter for longer compared to peers. Combine that with stronger GDP, and GBP is getting stronger.
Head & Shoulders Pattern In Play
GBP/USD has been breaking key levels including the 1.3400 handle which was previous used as support and resistance spanning back to the highs in April.
We can see a clear head and shoulders formation forming if if the price can retrace and trade back to 1.3400. If this occurs it could potentially form the right shoulder of the pattern, which can be a strong reversal point.
For me, if the data out of the UK remains positive combined with the weaker USD we are seeing, then longs from 1.3400 make sense.
I will be monitoring price action if the price makes it back to this supporting zone, and looking for lower time frame confirmations.
Disclaimer: This is just my own trading idea. Please do your own research and come to your own conclusion before taking any trade.