GBPUSD under pressure from weak UK data and dollar strength

The GBPUSD exchange rate is showing recovery after its June 17th correction. The Bank of England’s decision to maintain its key rate at 4.25% helped the pair stabilize and halt its decline. However, the pound came under renewed pressure on Friday following weak economic data, increasing volatility for the currency pair. At the time of writing, GBPUSD is trading near 1.34850.

The UK experienced a sharp decline in retail sales during May, dropping 2.7% month-on-month - the most significant contraction since December 2023. Consumers reduced spending on alcohol, tobacco, and household goods despite favorable weather conditions and holidays. Consumer activity is slowing nationwide due to rising inflation, increased utility bills, and labor market weakness. At the same time, consumer confidence continues to grow, signaling potential economic improvement.

Both the Bank of England and the US Federal Reserve (Fed) kept interest rates unchanged this week. The two regulators remain cautious due to global economic uncertainty and stand ready to act if domestic conditions in their respective countries deteriorate.

Pressure on GBPUSD intensifies due to the dollar's strengthening amid geopolitical instability in the Middle East. The conflict in this region, threats to close the Strait of Hormuz, and fears of escalating tensions have boosted demand for safe-haven assets, including the USD.

Apparently, the potential for further dollar weakening is limited, while the pound's upside is constrained by the weak domestic economy. The Fed expects inflation to rise to 3% by end-2025, citing risks from potential Trump tariffs, which increases the likelihood of US rates remaining higher than UK rates for longer. This creates monetary policy divergence, boosting the dollar's attractiveness.

On the GBPUSD chart, one may see a partial recovery following the June 17 correction. The RSI indicates a balance between buyers and sellers. Prices have dipped below the EMA (20) but remain above the EMA (50). A break below the EMA (50) could send the pair toward 1.32600.

Current recommendation:

Sell GBPUSD at the current price. Take profit – 1.32600. Stop loss – 1.36000.