GBP/USD posted strong gains last week, fully in line with the prevailing fundamental backdrop. It can therefore be said that the bulls launched a fresh advance at the end of June, followed by a typical corrective pullback, and are now attempting to resume the uptrend. Bearish Imbalance 24 was breached without triggering any meaningful price reaction. As a result, it can now be regarded as an inverted imbalance. A reaction to this pattern came from above on Friday, indicating that the pattern has already been validated and has generated a bullish signal.
As for the fundamental backdrop, I continue to believe that it favors the British pound. As I have noted previously, geopolitical developments are no longer providing meaningful support for the U.S. dollar, as new escalations in the conflict occur roughly every two weeks, with each new escalation differing little from the previous one. According to various reports, negotiations between Tehran and Washington are either continuing, temporarily suspended, or have completely broken down. Officially, Tehran denies holding direct talks with the United States but continues negotiations through intermediaries. It remains unclear what these negotiations can achieve without direct U.S. participation. Nevertheless, negotiations are preferable to no dialogue at all. At the very least, they may result in the reopening of the Strait of Hormuz. The closer that prospect becomes, the lower the likelihood of another bearish offensive.
Last week, oil prices climbed to $100 per barrel, and the consequences of another escalation in the Middle East combined with a blockade of the Strait of Hormuz could push prices as high as $120 per barrel. Under the most pessimistic scenario, oil would likely continue rising and surpass its March–May highs. In that case, inflation in both the United States and the United Kingdom could begin accelerating again. Under a more optimistic scenario, however, oil prices could return to the $60–70 per barrel range. In that case, further monetary tightening by the Federal Reserve may prove unnecessary, while the Bank of England is already no longer constrained by persistently high inflation. As a result, the U.S. dollar currently lacks support from either a hawkish central bank stance or geopolitical factors.
Technical analysis points to a renewed bullish advance. Traders currently have two bullish imbalances (24 and 25), both of which can be viewed as potential buying zones. Imbalance 24 generated a buy signal on Friday, and that signal now requires confirmation through further upside. There are currently no bearish patterns on the chart. Therefore, even if sellers attempt to regain control, there are no technical setups that would justify opening short positions.
The economic calendar was empty in the United Kingdom on Monday, while the United States released the closely watched ISM Manufacturing PMI. It is worth recalling that last week's U.S. second-quarter GDP report came in weaker than expected, meaning that the ISM report alone was unlikely to offset concerns about a slowing U.S. economy amid tensions in the Middle East. This week's Nonfarm Payrolls (NFP) report will likely determine the near-term direction of the U.S. dollar, although it will not be released until Friday. Until then, market activity may remain relatively subdued, but from a technical perspective, the pound continues to hold the advantage over the dollar.
The broader fundamental picture still leads me to expect further long-term weakness in the U.S. dollar. Neither the conflict between Iran and the United States nor expectations of a possible Federal Reserve rate hike in 2026 have materially changed that view. Geopolitical tensions temporarily reminded investors of the dollar's safe-haven status, but the conflict has already moved beyond its most intense phase. The Federal Reserve is expected to raise interest rates in 2026, which is supportive of the dollar. However, tighter monetary policy would also slow economic growth and weaken the labor market. In addition, Kevin Warsh was appointed by President Donald Trump to lead the FOMC with the objective of pursuing a more accommodative monetary policy—an approach that Jerome Powell was unwilling to adopt. Therefore, in my view, any appreciation of the U.S. dollar is likely to be temporary rather than the start of a sustained trend.
Economic Calendar for the United States and the United Kingdom
United States
- JOLTS Job Openings – 14:00 UTC
The economic calendar for August 4 contains only one event, which I do not consider particularly significant. As a result, the impact of macroeconomic data on market sentiment on Tuesday is likely to be limited or absent.
GBP/USD Forecast and Trading Tips
The long-term outlook for the British pound remains bullish. Following liquidity grabs around the two most recent swing points, buyers resumed their advance, followed by a corrective pullback and another bullish push. I expect the pound to continue appreciating this week, although gains are unlikely to occur every day. Traders will remain focused on U.S. labor market and unemployment data, which will play an important role in shaping the FOMC's decision at its September meeting. If sellers attempt another downward move, bearish technical patterns will be required to justify short positions, and at present, no such patterns are visible.
