**Pound-to-Dollar: Bullish Conviction Waning Says City Index**
*Original Reporting by Gary Howes, PoundSterlingLive.com*
Market sentiment around the British Pound (GBP) against the US Dollar (USD) is showing signs of ebbing bullish conviction, according to analysts at City Index. The GBP/USD currency pair, often referred to as “cable,” has enjoyed a strong run in recent months, benefiting from robust UK economic data and expectations of Bank of England (BoE) policy tightening. However, factors driving the uptrend are now being called into question.
As the market begins to reassess the supportive backdrop for Sterling, traders should review the shifting landscape that could steer the pound lower or introduce broader volatility. Below is an in-depth analysis of the situation, relying on insights from City Index as reported by Gary Howes at PoundSterlingLive.com.
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## Background: The Pound’s Resurgent 2024
The GBP/USD pair has rallied in 2024, reflecting a narrative of economic resilience in the UK and diverging interest rate expectations between the BoE and the US Federal Reserve. Key points underpinning sterling’s advance include:
– UK growth outpacing pessimistic forecasts and avoiding a protracted recession
– Headline inflation remaining sticky, compelling the BoE to adopt a cautious approach to rate cuts
– US Dollar softness as investors adjust to prospects of earlier Fed rate reductions
This confluence saw GBP/USD climb to new relative highs, with bullish traders positioning for further gains.
## Cracks in the Bullish Outlook
Despite this strong showing, the mood is shifting. City Index, a leading global broker and analysis provider, warns that conviction in the pound’s upward trajectory is starting to wane. The nuanced change in outlook rests on technical and fundamental grounds:
**Technical resistance and exhaustion:**
– The pound has repeatedly failed to sustain moves above 1.2850 against the dollar, a key technical resistance level watched by institutional traders.
– Momentum indicators on daily and weekly timeframes suggest overbought conditions, with Relative Strength Index (RSI) readings rolling over.
– The price action is characterized by waning bullish momentum, evidenced by smaller gain increments and more frequent pullbacks.
**Changing macro fundamentals:**
– Recent data, while still relatively upbeat, has lost some of the earlier “surprise” element, particularly as inflation moderates and employment shows early signs of softening.
– The Bank of England is more likely to embark on rate cuts later in the year, bringing its outlook closer to that of the Federal Reserve, reducing sterling’s yield advantage.
– The US economic picture remains robust, with Federal Reserve members pushing back against aggressive rate cut timelines, which could help the dollar recover lost ground.
## City Index’s View: Tactical Caution
City Index strategists contend that while the GBP/USD uptrend remains technically valid, the case for aggressive bullishness is weaker. The currency pair is vulnerable to shifts in risk appetite and disappointing macro data from the UK. Their observations are as follows:
*“We would argue that conviction for further gains in GBP/USD is not what it was a few weeks ago. The inability to sustain a break above the 1.2850 zone, coupled with a less convincing set of UK data, means the pound is at risk of correcting lower in the near-term.”*
### Key technical zones to watch:
– **Support at 1.2730/1.2750:** This area has absorbed multiple tests and could attract dip buyers. A sustained break lower would embolden sellers.
– **Resistance at 1.2850/1.2900:** The inability to clear this band on repeated occasions signals exhaustion and potential for a deeper retracement.
– **Medium-term uptrend line:** A breach of this trendline, drawn from late-2023 lows, would mark a tactical shift against sterling bulls.
## Macro Drivers in Focus
The near-term direction for GBP/USD will
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