**Pound Sterling Tests $1.31 Amid Strong UK Data, But Dollar Risks Remain**
*By Joel Hill, originally published at PoundSterlingLive.com*
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The British Pound (GBP) recently advanced towards the significant 1.31 level against the US Dollar (USD), a move underpinned by robust UK economic data and a softening of the greenback on international markets. As economic momentum builds in the UK, currency traders are weighing the risks and rewards of Sterling against the broadly watched Dollar. However, Dollar bulls remain vigilant and point to underlying risks that could see GBP/USD reverse some of its recent gains.
This comprehensive overview examines the key drivers behind Sterling’s rally, analyzes recent economic data releases, reviews the technical outlook for the GBP/USD pair, and assesses the main risks that Pound bulls should keep in mind as the currency pair tests multi-month highs.
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### Sterling Strengthens on Positive UK Economic Data
The Pound’s rally has been supported by a series of upbeat economic indicators:
– **Stronger-than-expected jobs data.** UK labor market statistics for May indicated accelerating wage growth and lower-than-expected unemployment, reinforcing the view that the Bank of England may need to keep monetary policy tighter for longer.
– **Hawkish Bank of England undertones.** Recent comments from Bank of England policymakers have suggested hesitancy about cutting interest rates too soon, given persistent price pressures, especially in the services sector.
– **Solid GDP growth.** Latest GDP figures showed the UK economy expanded by 0.4 percent in April, exceeding consensus estimates and demonstrating resilience despite the squeeze on household incomes.
Currency strategists note that the market’s repricing of expectations for the first BoE rate cut has played a pivotal role in elevating Sterling.
> “Sterling has found interest as markets push back the likely timing of the first rate cut in the UK,” says Joel Hill at PoundSterlingLive.com. “Economic data have come in firmer than consensus, keeping the Bank of England on alert and providing further support to the Pound.”
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### US Dollar Retreats as Inflation Softens and Fed Pushes Back on Rate Hikes
While UK data have provided a tailwind for the Pound, developments across the Atlantic have put the US Dollar on the defensive:
– **June inflation report undershoots expectations.** The US Consumer Price Index (CPI) report showed inflation cooling faster than analysts had forecast, bolstering expectations that the Federal Reserve may begin cutting rates as soon as September.
– **Dovish undertones from the Federal Reserve.** Fed Chair Jerome Powell, in his testimony to Congress, signaled greater confidence that inflation is falling back toward the central bank’s 2 percent target, while reiterating a cautious approach to rate reduction.
– **Cooling US jobs market.** Nonfarm payrolls and other labor market data have displayed signs of moderation, fueling the argument for a less restrictive policy stance from the Fed.
These data points have weighed on the US Dollar, which had previously found support from high yields and the Fed’s persistent messaging about patience on rate cuts. GBP/USD’s surge towards 1.31 has therefore been a function of both Sterling strength and Dollar weakness.
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### Technical Analysis: GBP/USD Eyes 1.31, But Can It Sustain Gains?
As of the latest trading session, GBP/USD has traded as high as 1.3090, its best level since mid-March. Technical indicators suggest the technical picture remains broadly supportive of further gains, but some caution is warranted at these elevated levels.
#### Key technical observations:
– **Resistance at 1.31.** The psychological and historical significance of the 1.31 handle means it may be a difficult barrier for bulls to overcome in the short-term. Failure to break cleanly above could prompt short-term profit taking.
– **Overbought readings.** Some technical oscillators, such as the Relative Strength Index (RSI), signal that momentum
Read more on GBP/USD trading.