The GBP/USD pair continues its upward move, which I consider entirely justified. Last week's reports on the US economy and labor market put a firm end to the debate over whether the FOMC will raise the interest rate in September. Nonfarm Payrolls declined for the fourth consecutive time, but this time it not only showed a low reading but also fell below zero. Thus, the number of jobs in the US economy is no longer simply growing very slowly; it is declining. A similar situation occurred several times last year, and the Fed then had to cut the interest rate three times to prevent an even sharper deterioration in the labor market. In recent weeks, there have been widespread rumors in the market that high inflation would force the Fed to raise rates. Kevin Warsh also spoke about excessively high inflation that needs to be urgently brought back to the target level. However, as I expected, inflation is not the only factor that matters. Given the current Nonfarm Payrolls figures, I no longer expect monetary policy tightening. This is a significant setback for the US dollar. This week, the July inflation report will be released. If it shows a slowdown in inflation, the FOMC will have no reason at all to tighten policy. Let me remind you that the market began pricing in an interest-rate hike two months ago, and it is now being hit by a wave of disappointment every week. I believe the dollar's decline will continue.
As I have already said, geopolitics is no longer having a favorable effect on the dollar, as new escalations of the conflict occur approximately once every two weeks. Each new escalation is no different from all the previous ones. Negotiations between Tehran and Washington are reportedly continuing, reportedly on hold, or reportedly have completely failed. Officially, Tehran denies that it is negotiating with the Americans, but it continues talks with intermediaries, particularly Oman. It is still unclear what these negotiations will lead to in terms of ending the conflict and opening the Strait of Hormuz. Iran may be able to agree with Oman on the terms for controlling the Strait of Hormuz, but how would this resolve the conflict with the US and end the American blockade of the strait?
At the beginning of the new week, oil rose to $88 per barrel. If the situation begins to develop according to the most pessimistic scenario, oil will rise further and retest the March–May highs. In this case, inflation in the US or the UK will begin to accelerate again. If the situation develops according to the optimistic scenario, oil prices will return to the $60–70 per barrel range. In that case, Fed policy tightening may not be necessary, while the Bank of England is already not burdened by the problem of high inflation. However, at present, it is the Fed that cannot bring itself to take a "hawkish" step, while the Bank of England, on the contrary, would be prepared to tighten monetary policy only if inflation begins to accelerate, which there are currently no signs of.
The chart analysis shows a new bullish advance. At present, traders have two "bullish" imbalances (24 and 25), within which long positions can be considered. Imbalance 24 has already generated a "bullish" signal that traders could have acted on by opening long positions. There are currently no "bearish" patterns.
There was no economic news background on Monday. Thus, I do not expect any strong moves through the end of the day. The bulls remain positive, and this week only the US inflation report could dampen their sentiment.
The overall news background remains such that, in the long term, I can expect nothing other than a decline in the US dollar. The war between Iran and the US has not changed this outlook. The possibility of Fed rate hikes in 2026 has not changed it either. Geopolitical developments prompted the market to remember the dollar's safe-haven status for several months, but the conflict has already passed its active phase. The chances of FOMC monetary policy tightening have declined significantly in recent weeks, putting pressure on the US currency. Thus, in my view, any rise in the dollar is temporary and driven by short-term factors. I see no reasons for a new bearish advance.
Economic Calendar for the US and the UK:
- US – Existing Home Sales (14:00 UTC).
On August 11, the economic events calendar contains one insignificant release. The impact of the economic background on market sentiment on Tuesday will be extremely weak or absent.
GBP/USD Forecast and Trading Tips:
The long-term outlook for the pound remains "bullish." After liquidity sweeps of the two most recent swings, the bulls began an advance, followed by a corrective pullback and another bullish attack. Next week, I expect the pound to continue rising because the US labor-market reports were weak and the probability of FOMC monetary policy tightening is now extremely low. The US inflation report will be released this week and could finally convince traders that the Fed will not tighten policy. If the bears launch another advance, "bearish" patterns will be required for short positions, but there are currently none. The bulls received a buy signal from imbalance 24. The targets for the pound's advance are the highs from July 15 and May 1 at 1.3557 and 1.3656, respectively.
