• The GBP/USD forecast remains positive above 1.3500 after the Fed’s dovish tone.
• The BOE-Fed divergence points at stronger gains towards fresh yearly highs.
• Markets are in a lull before key macro releases like US GDP, Core PCE, and Durable Goods Orders.

The British pound pared its losses sharply on Friday after Fed Chair Powell struck a dovish tone in his Jackson Hole speech. The US dollar lost traction from its weekly top, lending room to the GBP/USD to soar to the 1.3540 area before easing slightly to 1.3490. The move suggests growing expectations of the Fed to pivot to rate cuts as early as September.

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The Fed Chair signaled that the Fed is more cautious about the labor market than inflation, as he highlighted the risk of decreased employment after weak jobs data in July, with only 73k new jobs added and unemployment ticking up to 4.2%. On the other hand, the inflation remains elevated with core CPI at 3.1%. Powell’s remarks triggered a sell-off in the Dollar Index to a 4-week low of 97.60 with US10Y falling to 4.24%.

From the UK, the Bank of England is left with little room to ease policy. UK inflation for July remained sticky with core CPI climbing to 3.8% and retail price index to 4.8%. BOE Governor Bailey at Jackson Hole noted that the UK faces challenges, including reduced labor participation, weak growth, and a demographic shift since the pandemic.

This policy divergence leaves Sterling in a strong position against the greenback as traders expect at least one rate cut by the Fed, while the BOE is seen holding rates steady for longer.

Data Ahead: Core PCE and GDP to Drive USD

The coming week brings several high-impact US releases that could test the GBP/USD rally. Key prints include:

• US Preliminary GDP (Thursday): Expected to confirm slowing growth momentum.
• Core PCE Price Index (Friday): any downside surprise would strengthen the case for September cuts.
• Durable Goods Orders (Monday): A soft print may reinforce growth concerns.

UK markets are closed for the Summer Bank Holiday on Monday, likely muting volatility in early trade.

GBP/USD technical forecast: Inverse Head & Shoulders Points to More Upside

The GBP/USD 4-hour chart shows the pair is struggling to find acceptance above the 1.3500 handle. However, the pair has formed an inverse H&S pattern with neckline resistance at 1.3580. A decisive breakout could lead the rally to the 1.3700 mark.

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The RSI remains neutral around 60.0, suggesting more room for the bulls but lacking a catalyst at the moment. On the downside, the immediate support emerges at 1.3460 ahead of 1.3400.

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