GBP/USD Consolidates, Upside Potential Ahead

GBP/USD Consolidates as Bullish Sentiment Prevails amid Divergent Central Bank Outlooks

Introduction:
The GBP/USD pair finds itself in a consolidation phase, struggling to gather momentum on Monday after last week's breakout from an ascending trend channel. With a bullish bias prevailing and solid support from market expectations, any potential corrective decline in the pair is likely to be viewed as a favorable buying opportunity. As the US Dollar (USD) contends with a weakened position, the British Pound (GBP) benefits from growing speculations of a more aggressive policy tightening stance by the Bank of England (BoE) to combat rising inflation.

GBP/USD Rangebound Trading:
During the first half of the Asian session on Monday, the GBP/USD pair remained rangebound, hovering just below the key psychological level of 1.3100. While lacking a definitive directional bias, spot prices remain within striking distance of the highest level recorded since April 2022, touching the 1.3140 region on Friday. This suggests that the pair's recent upward trajectory, observed over the past two weeks, may continue to unfold.

USD's Struggle and GBP's Support:
The US Dollar faces challenges in capitalizing on Friday's modest rebound from a 15-month low. Market sentiment is increasingly leaning towards the belief that the Federal Reserve (Fed) will conclude its rate-hiking cycle following the anticipated 25 bps lift-off in July. Conversely, the British Pound is supported by mounting expectations of a more assertive policy tightening approach by the Bank of England (BoE) to rein in elevated inflationary pressures. This divergence in central bank outlooks reinforces the notion that the path of least resistance for the GBP/USD pair remains tilted to the upside.

Buying Opportunity amid Corrective Slide:
Given the prevailing bullish sentiment and contrasting monetary policy expectations, any meaningful corrective decline in the GBP/USD pair is likely to be interpreted as a buying opportunity. Market participants, anticipating the BoE's proactive stance on curbing inflation, may view dips in the pair's value as attractive entry points.

Conclusion:
As the GBP/USD pair consolidates in a trading range, the overall sentiment remains bullish, fueled by expectations of a more aggressive policy tightening stance from the BoE. In contrast, the USD struggles to gain traction amidst speculation that the Fed's rate-hiking cycle is nearing its end. Traders should keep a watchful eye on potential buying opportunities during any corrective slides, as the broader outlook suggests further upside potential for the GBP/USD pair.


Our preferred Scenario

Long positions with targets at 1.3110 & 1.3125 in extension.