Pound Sterling runs out of room at the July high

Sterling spent the London morning building a case for a break and the rest of the session dismantling it, trading near 1.3495 after a high just short of 1.3550 and a loss of not quite a tenth of a percent. The mid-July peak sits a handful of pips above where today's advance stopped, which makes this the second time in four weeks that one level has turned the Pound around.

What sits underneath the day is better than the day itself. The 50-day and 200-day Exponential Moving Averages (EMA) are converged just above 1.3400 and have crossed back with the faster line on top, and price has held above both for ten sessions. The daily Stochastic Relative Strength Index (Stoch RSI) reads near 63 and rising, with room left before it argues anything.

The inflation print that changed nothing

The July Consumer Price Index (CPI) arrived at 12:30 GMT and matched the forecast on every line: 0.1% MoM and 3.4% YoY on the headline, 0.2% and 2.5% on the core measure, with both annual rates a tenth beneath June. The most anticipated number of the week produced no reversal in a currency that had been falling for three hours before it landed.

The composition is no cleaner than the headline. Shelter did roughly two thirds of the monthly work and energy still runs close to 15% higher than a year ago, so the deceleration owes more to arithmetic than to any change in what households pay. Futures trimmed the odds on a September increase toward the low forties, from a coin flip a day earlier and three quarters at the end of July, and left the Federal Reserve question open in a way no single print this month will resolve.

Washington out-borrowed Westminster

The larger American number came later in the session. The July federal deficit reached 432 billion Dollars against a 346 billion consensus, a record for the month and the widest gap since March 2021, and the fiscal year to date now stands at 1.799 trillion Dollars with two months still to run. That total has already passed the whole of the previous fiscal year.

Net interest alone cost 104 billion Dollars in the month, and customs receipts ran negative once refunds are counted. Sterling has traded all summer on whether a new government can be trusted with the public finances, a question the gilt market prices through a 10-year yield sitting near 5% since the leadership change. The country on the other side of this exchange rate posted its worst July on record and funded it at a 10-year auction clearing above 4.68%.

Britain finally has to show its numbers

The first British release in three weeks lands Thursday at 06:00 GMT, and it covers the quarter rather than a month. Second-quarter Gross Domestic Product (GDP) carries a 0.4% consensus after 0.6%, with the annual rate seen accelerating to 1.1% from 0.9%. One set of figures will therefore produce a slowdown headline and an acceleration headline at the same time, which is what base effects do to a growth story.

The detail beneath is where any damage comes from. Business investment is forecast at -0.5% on the quarter after 0.9%, June monthly output at zero after 0.1%, and manufacturing production at -0.2% after 0.1%. Swaps still price another 50 basis points of Bank of England tightening across twelve months, which would lift Bank Rate above the range the central bank itself treats as neutral, so a soft quarter is the cleanest route to unwinding it.

The American side then runs two more days. Producer prices at 12:30 GMT Thursday carry a 0.2% MoM consensus after -0.3%, with the core annual rate seen at 4.2% from 4.7%, alongside jobless claims at 202K from 199K and two regional Federal Reserve presidents speaking either side of the release. Friday brings retail sales at 0.1% MoM and preliminary August consumer sentiment at 54.5 from 55.2.

Positioning is the quiet risk running through all of it. Commodity Futures Trading Commission (CFTC) figures published Friday at 19:30 GMT last showed speculators net short 57.8K Sterling contracts, a position built while the currency was making its lows in late July. Close to three cents of rally later, that is a crowd with every reason to keep buying and nothing British yet to justify it.

Levels and bias

Resistance: 1.3550 is the line, the mid-July peak and the level that stopped today's advance within a handful of pips. Above it 1.3600 is clear air, with the early-May high near 1.3650 capping the frame.

Support: The session low sits just beneath 1.3500, with 1.3450 the first real shelf and the converged EMA band just above 1.3400 the floor that decides the trend. Beneath both, 1.3350 and then the late-July base just above 1.3250.

Bias: Bullish while the 1.3400 band holds, with a daily close above 1.3550 the trigger for a run at 1.3600. This rally has been paid for entirely by a weakening Greenback, so the threat is not American: it is a British growth miss on Thursday morning that unwinds the tightening still priced into the front end. Invalidation is a daily close back beneath 1.3400.

GBP/USD daily chart