British Pound stays weak below 1.3250 as USD bulls retain control ahead of FOMC Minutes

The GBP/USD pair weakens further below mid-1.3200s during the first half of the European session on Wednesday, eroding a major part of the previous day's move higher amid a broadly firmer US Dollar (USD). Spot prices, however, remain confined in a familiar range held over the past two weeks or so as traders keenly await the release of FOMC Minutes before placing fresh directional bets.

The US macro data released last week pointed to moderating inflation and a slight cooling in the labor market, easing pressure on the Federal Reserve (Fed) to raise interest rates. Markets, however, are still pricing in around an 85% chance that the US central bank will raise borrowing costs by the end of this year. Hence, the FOMC Minutes would be scrutinized closely for more cues about the Fed's policy path. The outlook, in turn, will influence the USD and provide some meaningful impetus to the GBP/USD pair.

Heading into the key event risk, persistent geopolitical uncertainties stemming from ongoing conflicts in the Middle East continue to act as a tailwind for the safe-haven buck. In the latest developments, Saudi-backed Yemen's internationally recognized government forces claimed control over strategic points along the Red Sea coast, including areas around the Bab al-Mandeb Strait. Adding to this, the Iran-backed Houthi group in Yemen retaliated by attacking key targets in Saudi Arabia, including an Aramco refinery in Riyadh.

Moreover, Iran has ramped up its pace of attacks in the Strait of Hormuz over the past week, helping crude oil prices hold above a one-month low touched on Tuesday. Meanwhile, the recent global bond rout keeps US Treasury yields close to multi-year highs, which is seen as another factor underpinning the USD. The British Pound (GBP), however, could draw support from bets for tighter monetary policy ‌from the Bank of England (BoE), warranting caution before placing fresh bearish bets on the GBP/USD pair.

UOB sees limited upside for GBP

Strategists at UOB Group note that their expectation for GBP/USD to “range-trade between 1.3195 and 1.3245” proved incorrect after the Pound “rose to a high of 1.3286.” They acknowledge that “upward momentum has increased, albeit not significantly,” and now judge that “today, there is a chance for GBP to retest 1.3285.” However, they add that “a continued rise above this level is unlikely,” with the “major resistance at 1.3315” also “unlikely to come under threat.” On the downside, UOB highlights “support is at 1.3240, followed by 1.3220.”

GBP/USD 4-hour chart

Technical Analysis

The recent range-bound price action witnessed over the past two weeks or so could be categorized as a bearish consolidation phase against the backdrop of the decline from the August swing high. Moreover, the GBP/USD pair trades beneath the 100-period Simple Moving Average (SMA) dynamic barrier on the 4-hour chart, suggesting that rallies are vulnerable while the broader structure leans lower.

The said barrier, near 1.3300, coincides with the top boundary of the trading range. Sustained strength above this barrier is needed to ease bearish pressure and open the way toward higher levels. On the downside, bears might await some follow-through weakness below 1.3180 before placing fresh bets and positioning for an extension of the downfall from the August monthly swing high near 1.3675..