During early European trading on Tuesday, the GBP/USD pair continued its strong rebound, with the exchange rate climbing near 1.3680, reaching its highest level since September 17, 2025.
The pound's strength was primarily fueled by better-than-expected UK economic data. Figures showed that both UK retail sales and the Purchasing Managers' Index (PMI) surpassed market forecasts, indicating resilient domestic demand and robust business activity.
This performance has led some market participants to reassess the Bank of England's policy trajectory, suggesting that with the economy still showing resilience, the central bank may not be in a hurry to implement further interest rate cuts.
Against the backdrop of improving UK data, market confidence in pound-denominated assets has recovered, with capital inflows driving the currency pair steadily higher. Meanwhile, the US dollar faced broad-based pressure. Concerns over the Federal Reserve's policy independence continue to simmer, and news that US President Trump may announce his nominee for the next Fed Chair this month has sparked investor uncertainty about the future direction of monetary policy.
Markets worry that a new chair more aligned with the White House's stance could undermine the Fed's independence, potentially diminishing the dollar's medium- to long-term appeal. Additionally, uncertainty surrounding the US fiscal outlook is also weighing on the dollar.
Unresolved disagreements over government funding issues keep markets alert to the risk of a potential government shutdown, which, to some extent, has eroded the dollar's safe-haven attributes.
Market sentiment turned cautious ahead of the Fed's interest rate decision. The Federal Reserve is scheduled to announce its latest policy decision on Wednesday, with widespread expectations that it will hold rates steady after three consecutive cuts in late 2025. Investors will closely monitor the post-meeting press conference for clues on any shifts in the policy stance.
Should the officials' rhetoric lean hawkish, the dollar might gain temporary support, which could, in turn, exert some downward pressure on the GBP/USD pair.
From a daily chart perspective, GBP/USD maintains a clear and solid bullish trend. The price continues to trade within an ascending channel and sits firmly above the 100-day Exponential Moving Average (EMA), currently situated near 1.3385. The upward slope of this average indicates that the medium-term bullish structure remains intact.
Any pullback that holds above this EMA zone would still be considered a healthy consolidation. Regarding momentum indicators, the 14-day Relative Strength Index (RSI) has risen to around 72, entering technically overbought territory.
This suggests strong short-term momentum but also hints that the pace of gains may slow, indicating a potential need for a period of consolidation or profit-taking. However, the RSI has not yet shown clear bearish divergence signals, implying that the trend shows no immediate signs of reversal.
Observing the volatility structure, the Bollinger Bands have noticeably widened, indicating rising market volatility. The current price has been pushed near the upper band and even breached it temporarily, suggesting that upward momentum is somewhat stretched in the short term.
Under these conditions, a "pullback for confirmation" is possible. If bullish momentum cools, the initial downside target for the pair would be the middle Bollinger Band area, around the 20-day EMA near 1.3480. This level holds dual significance as both a trend and volatility indicator support; holding above it would help sustain the bullish structure.
Further support below lies near the lower Bollinger Band at approximately 1.3306. A break below this zone would risk a deeper correction on the daily chart. On the upside, as long as the price remains above the area of the recent upper band breakout, the short-term bullish bias is likely to persist.
However, it is important to note that with both amplified volatility and overbought signals present, the pace and extent of any pullback could accelerate significantly. Overall, the daily technical setup for GBP/USD remains bullish, but the pair is currently in a high-altitude phase following a trend extension, making it more prone to volatility than a one-sided acceleration higher.
Editor's View: The current rise in GBP/USD reflects the market's repricing of the economic and policy divergence between the UK and the US. Improving UK data has dampened expectations for immediate further easing, while the dollar is weighed down by dual pressures of policy independence concerns and fiscal uncertainty.
Technically, the exchange rate remains within a bullish trend, but overbought signals warn of increasing risks in chasing the rally. Barring new fundamental catalysts, the price action is more likely to digest gains through consolidation or a pullback. The medium-term direction still leans towards a gradual ascent, but short-term caution is warranted due to potential volatility from the Fed's communication.
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