The pound continues to struggle to find direction against the dollar. The pair is trading between the middle and upper lines of the Bollinger Bands on the D1 timeframe, that is, within the 1.3490–1.3580 range. Buyers continue to test the upper limits near 1.36, while sellers attempt to secure the price below 1.3500. However, as soon as the price approaches either boundary of the channel, traders lock in profits and the pair returns to prior levels.
Breaking out of this "vicious circle" will require a major trading catalyst to tip the balance in favor of either GBP/USD bulls or bears. That is why traders are now focused on the US CPI (to be published at the start of the US session on Thursday) and UK GDP (set for release on Friday). These releases could bring strong volatility—but only if the outcomes are divergent, for example, if US CPI favors the dollar but UK GDP falls short. Of course, the opposite scenario is possible as well.
According to preliminary forecasts, the UK economy will show a flat reading: the July GDP is expected to print at 0.0% m/m, compared to a 0.4% increase in June. On a quarterly basis, the British economy is expected to show weak growth of just 0.1% (down from 0.3% the previous month).
Other release components may also disappoint GBP/USD bulls. For example, industrial production and manufacturing output are both forecast to print at 0.0% m/m. The services sector activity index is expected to be at 0.3%, continuing its fourth consecutive monthly decline (for comparison, in March it was 0.7%).
If these indicators meet forecasts or fall into negative territory, the pound will come under pressure. However, in my view, such an outcome is unlikely to become a medium/long-term "anchor" for GBP, as other macro indicators (which we'll discuss below) suggest a wait-and-see approach, and soft results are already partly priced in.
On the other hand, if the UK economy delivers even a minimal upside surprise, the pound could gain and GBP/USD buyers could test resistance at 1.3580 (the upper Bollinger Band on D1).
Recent data show UK inflation rising and retail sales growing. The headline CPI m/m rose 0.1% (forecast: -0.1%). Year-on-year, headline CPI jumped to 3.8% (forecast: 3.7%), the highest since January 2024—a second straight month of gains. Core CPI also accelerated to 3.8% y/y (forecast: 3.7%), with this level last seen in April 2024. The retail price index accelerated to 4.8% (forecast: 4.6%), its strongest pace since February 2024. Services inflation also rose, reaching 5.0%.
Subsequent UK retail sales data also beat forecasts. Including fuel, sales rose 0.6% m/m (forecast: 0.2%) and 1.1% y/y (forecast: 1.3%). Excluding fuel, sales increased by 0.5% m/m (forecast: 0.4%) and 1.3% y/y (forecast: 1.2%).
If UK GDP beats expectations, it would harmoniously complement this favorable macro backdrop.
It is worth noting that most market analysts expect the Bank of England to keep rates unchanged through at least September and October. Prospects are less certain; for instance, Deutsche Bank allows for a rate cut in December. If the British economy shows relatively good results, dovish expectations will weaken further, and the pound will gain strength.
Technically, GBP/USD is between the mid and upper Bollinger Bands and above all Ichimoku lines (including the Kumo cloud). This setup favors longs, but, as mentioned, the 1.3580 upper Bollinger Band (D1) is a resistance "ceiling". So, as price approaches this level, caution is warranted—even if the macro setup would otherwise support further gains.
