The British pound edged higher against the US dollar in Asian trading on Friday, with the GBP/USD pair recovering to around 1.3320, snapping a five-day losing streak. However, the rebound remains limited as heightened global risk aversion boosts demand for the safe-haven dollar, with investors now awaiting the latest UK retail sales data for clues on economic performance and Bank of England policy direction.
Geopolitical tensions drive dollar demand
Renewed tensions in the Middle East have become a key factor impacting the forex market. The US Central Command stated that the US has conducted operations against Iran-related targets for the 13th consecutive night, keeping regional risks elevated. President Donald Trump previously stated that the US would hold Iran accountable for actions linked to the Houthi group and warned of potential "massive military punishment." This rising geopolitical risk has strengthened demand for the US dollar as a safe haven. During periods of low risk appetite, the dollar typically benefits from capital inflows, while risk-sensitive currencies like the pound tend to face pressure. Consequently, despite a technical bounce in GBP/USD, dollar strength is likely to limit the pair's upside potential in the near term.
UK retail sales in focus
Meanwhile, UK domestic economic data is the market's primary focus. UK retail sales for June are forecast to show a 0.3% month-on-month decline, following a 1.2% increase in May. A stronger-than-expected result could boost confidence in the UK economy's resilience and support expectations that the Bank of England will maintain a relatively tight policy stance, which would be positive for the pound. The market widely expects the Bank of England to keep its benchmark interest rate unchanged at its upcoming policy meeting. Market pricing suggests the BoE will likely hold rates at 3.75% to assess the impact of the Middle East situation on energy prices, inflationary pressures, and economic growth. Investors anticipate limited scope for future policy adjustments, with little change in expectations for rate cuts or hikes through the end of 2026. Analysts believe the pound's current movement is primarily driven by a combination of UK economic data, Federal Reserve policy expectations, and global risk sentiment.
Steady BoE rate expectations underpin pound
Analysts at the Bank of Scotland note that the market broadly expects no rate change at the next Monetary Policy Committee meeting, with the benchmark rate seen staying at 3.75%. This stable policy outlook provides a key backdrop for recent sterling trading, with the market increasingly relying on UK economic data for directional cues.
Market performance and key levels
From a market performance perspective, the pound has shown signs of repair after its recent decline, but remains in a broadly weak and choppy pattern. Weak UK retail sales could reinforce concerns about an economic slowdown and undermine the pound's rebound momentum. Conversely, a significantly better-than-expected reading could prompt a reassessment of the Bank of England's policy outlook.
Technical analysis
On the daily chart, GBP/USD found some support around the 1.3300 level after a period of pullback, showing initial signs of stabilizing. The pair is still trading below its short-term moving averages, indicating a generally weak trend. Upside resistance is seen in the 1.3380-1.3400 zone; a break above this area could lead to a test of resistance near 1.3450. On the downside, initial support is at the 1.3300 psychological level, followed by the 1.3250 region. A break below this level could open the door to further downside. On the 4-hour chart, the pair is showing a short-term bounce, but upside momentum remains limited. The MACD indicator suggests waning bearish momentum, while the RSI has risen from oversold levels, pointing to a need for a short-term correction. However, the price needs to break above key moving average resistance to confirm a trend reversal. A firm hold above 1.3380 could extend the short-term bounce, while a break back below 1.3300 could see a retest of previous lows.
Outlook summary
GBP/USD is currently caught in a tug-of-war between multiple factors. On one hand, the Bank of England's relatively high interest rate and potentially improving UK economic data provide some support for the pound. On the other hand, escalating Middle East risks are boosting safe-haven demand for the dollar, creating headwinds for sterling. In the near term, UK retail sales data will be a key catalyst for the pound's direction. Stronger economic data could lift expectations for the BoE to maintain its tightening bias, supporting a pound rebound. However, weak data, coupled with ongoing global risk aversion, could keep the pound under pressure. Future movements will depend on UK economic performance, Bank of England policy signals, and changes in dollar safe-haven demand. Until geopolitical risks subside, GBP/USD is likely to remain range-bound.
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