Market Insights > Daily Market Analysis

1 July 2025,07:04

Daily Market Analysis

Pound Rises as BoE Pushes Back on Rate Cuts

1 July 2025, 07:04

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Key Takeaways:

*Sterling rallies to 4-year high as BoE strikes hawkish tone

*Middle East ceasefire boosts risk appetite, weighing on USD

*Markets await August BoE decision amid sticky wage pressures

Market Summary:

The British Pound extended its rally on Thursday, with GBP/USD advancing toward 1.3765—its highest level since 2021—as global risk sentiment improved and the Bank of England maintained a cautiously hawkish tone. A tentative ceasefire between Israel and Iran has eased immediate geopolitical concerns, helping shift flows out of defensive assets like the dollar and into higher-beta currencies such as sterling.

On the policy front, the BoE continues to signal that interest rates must remain restrictive despite persistent softness in the UK consumer landscape. Governor Bailey reiterated that inflation remains the primary concern, especially with wage growth still elevated at 5.1% year-on-year. While markets are pricing in a possible rate cut in August, recent commentary from policymakers suggests a growing reluctance to move prematurely. This divergence from the increasingly dovish Federal Reserve stance has lent the pound additional support.

Despite nine consecutive months of falling retail sales, labor market indicators point to only gradual softening, reducing the urgency for rate cuts. Investors are also monitoring political developments ahead of the UK general election, with potential shifts in fiscal policy under a new government likely to influence longer-term sterling sentiment.

In the near term, the pound’s direction will hinge on U.S. inflation data, the BoE’s August decision, and broader geopolitical developments. A hawkish hold from the BoE could push GBP/USD toward 1.3820, while rising political risk or soft inflation could prompt near-term consolidation.

Technical Analysis

GBPUSD, H4

GBP/USD continues to climb, with price action now pressing against the 78.6% Fibonacci retracement level at 1.3727 — a critical technical barrier that may determine the next directional move. This latest rally, fueled by a sharp bounce from the 1.3420 support area, showcases strong bullish sentiment and aggressive buying momentum. The pair has convincingly cleared the 61.8% retracement at 1.3655, typically viewed as a decisive line between correction and continuation, adding weight to the bullish case.

However, as the pair approaches this key Fibonacci resistance, momentum signals are beginning to flash caution. The Relative Strength Index (RSI) has surged to 69, hovering just beneath overbought territory. Though not yet at extremes, this level historically marks points where uptrends either pause or reverse. The RSI’s recent flattening suggests waning upward force, raising the risk of a short-term consolidation phase.

Meanwhile, the MACD remains in bullish alignment, with the MACD line still above the signal line and histogram bars continuing to print in positive territory. Yet the momentum appears to be moderating — histogram expansion has slowed, hinting that the rally’s intensity may be tapering off. This interplay between strong bullish price structure and emerging momentum fatigue creates a pivotal scenario.

Resistance Levels: 1.3810, 1.3935

Support Levels: 1.3727, 1.3655

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