Why GBP/USD is Experiencing Bullish Momentum

The GBP/USD currency pair has recently exhibited strong bullish momentum, climbing above the 1.3500 barrier to reach multi-day highs as of July 23, 2025. This upward trajectory is driven by a confluence of technical, economic, and geopolitical factors, with the US dollar facing significant selling pressure and the British pound capitalizing on favorable domestic and global conditions. This article explores the key drivers behind GBP/USD’s bullish run, including the weakening US dollar, UK economic resilience, Bank of England (BoE) policy outlook, global tariff uncertainties, and concerns over Federal Reserve independence.

US Dollar Weakness: A Primary Catalyst

The US dollar has been under considerable pressure, as evidenced by the US Dollar Index (DXY) slipping 0.3% to 97.545, following a 0.6% decline on Monday. Over the past month, the DXY has weakened by 0.39%, and over the last 12 months, it has fallen by 6.61%. This broad-based selling pressure has been a significant driver of GBP/USD’s upward movement. Several factors contribute to the dollar’s decline:

1. Federal Reserve Independence Concerns: President Donald Trump’s repeated criticisms of Federal Reserve Chair Jerome Powell have raised concerns about the central bank’s independence. Trump’s calls for Powell’s resignation, driven by the Fed’s cautious approach to cutting interest rates, have unsettled investors. Although US Treasury Secretary Scott Bessent recently softened this stance, suggesting Powell could serve out his term until May 2026, the uncertainty surrounding the Fed’s autonomy has dented confidence in dollar-denominated assets. This has led investors to reallocate funds away from the dollar, boosting pairs like GBP/USD.
2. Tariff-Induced Uncertainty: The Trump administration’s aggressive tariff policies, including the April 2, 2025, announcement of widespread tariffs on major trading partners, have introduced significant volatility into financial markets. While tariffs typically strengthen the dollar by increasing the cost of imports, the scale and unpredictability of these measures have instead triggered a sell-off in US assets, including the dollar. The subsequent 90-day pause on most tariffs (except those on China) has added to the uncertainty, prompting investors to seek alternatives to dollar-based investments. This has indirectly supported GBP/USD’s bullish momentum.
3. Declining US Treasury Yields: The fall in US Treasury yields, particularly the 10-year yield, has further weakened the dollar. Lower yields reduce the attractiveness of dollar-denominated assets, encouraging capital outflows and supporting the relative strength of other currencies, including the British pound.

Technical Analysis: Bullish Signals for GBP/USD

From a technical perspective, GBP/USD’s bullish momentum is well-supported by key indicators. On the 4-hour chart, the Relative Strength Index (RSI) remains above 60, indicating sustained bullish momentum without entering overbought territory. The pair is also trading comfortably above the 20-period and 50-period Simple Moving Averages (SMAs), reinforcing the bullish outlook. Key resistance levels to watch include 1.3500 (a static and round level), 1.3540 (Fibonacci 38.2% retracement of the latest uptrend), and the 1.3555-1.3560 zone (100-period and 200-period SMAs). Support levels are identified at 1.3470-1.3460 (Fibonacci 50% retracement and 50-period SMA) and 1.3400-1.3390 (round level and Fibonacci 61.8% retracement). These technical levels suggest that GBP/USD has room to extend its gains, particularly if it breaks above the 1.3500 resistance.

Recent price action further supports this bullish setup. GBP/USD has broken out of a descending channel on the 4-hour chart, signaling a potential reversal from bearish to bullish momentum. The pair has also rebounded from a strong support zone around 1.3390, with some analysts noting the formation of a double-bottom pattern, a classic bullish reversal signal. These technical developments, combined with the dollar’s weakness, provide a robust foundation for GBP/USD’s upward trajectory.

UK Economic Resilience and BoE Policy Outlook

The British pound’s strength is not solely due to dollar weakness; domestic economic factors in the UK are also playing a crucial role. Despite challenges such as soaring government borrowing and a widening budget deficit, recent UK economic data has shown resilience. For instance, softer UK jobs data has eased pressure on the Bank of England to maintain high interest rates, but market focus remains on the BoE’s policy stance, which is perceived as relatively hawkish compared to the Fed’s dovish signals. Posts on X indicate that GBP/USD has been supported by resilient UK economic data and a softer US dollar, with market participants anticipating the BoE’s rate decision on July 24, 2025.

The BoE’s cautious approach to rate cuts, contrasted with expectations of two to three Fed rate cuts by the end of 2025, has widened the interest rate differential in favor of the pound. Higher UK interest rates relative to the US make sterling-denominated assets more attractive, drawing capital inflows and supporting GBP/USD’s bullish momentum. Additionally, recent PMI data suggests further gains for the UK economy, providing a positive backdrop for the pound.

Global Tariff Uncertainties and Safe-Haven Demand

Global tariff uncertainties have created a complex environment for the foreign exchange market, with currencies trading in tight ranges due to the lack of clarity on trade policies. However, the British pound has benefited from its relative stability compared to the dollar. The tariff-induced sell-off in US equities and Treasuries, which erased over $5 trillion from the S&P 500 in early April, has heightened global risk aversion. While the dollar typically strengthens as a safe-haven currency during market turmoil, its role has been undermined by concerns over US economic stability and Fed independence. This has driven investors toward alternative safe-haven assets, such as gold (which surpassed $3,400 per troy ounce) and, to some extent, the British pound, which is perceived as less exposed to US policy volatility.

Moreover, the pause in tariff implementation (except for China) has alleviated some pressure on global trade, allowing currencies like the pound to gain ground against the dollar. The UK’s economic ties with the European Union and its relatively diversified trade portfolio have also shielded the pound from the worst effects of US tariff policies, further supporting GBP/USD’s bullish run.

Market Sentiment and Positioning

Market sentiment, as reflected in posts on X, underscores the bullish outlook for GBP/USD. Traders are actively monitoring key technical levels, with some identifying bullish confluences such as daily areas of interest (AOI), exponential moving average (EMA) support, and head-and-shoulders patterns on the 4-hour chart..

Market positioning also reflects optimism about the pound. The UK’s economic data, combined with the dollar’s weakness, has encouraged traders to take long positions on GBP/USD. The pair’s low volatility rating of 0.07% suggests that while markets remain cautious due to tariff uncertainties, the pound’s steady performance has instilled confidence among investors.

Risks to the Bullish Outlook

Despite the strong bullish momentum, risks remain. A reversal from the 1.3500 resistance could lead to a retest of lower support levels, such as 1.3380 or 1.3250, particularly if US economic data surprises to the upside or if tariff policies stabilize. Additionally, the BoE’s upcoming rate decision could introduce volatility if it signals a more dovish stance than expected. Ongoing concerns about Fed independence and the potential for renewed trade tensions could also cap GBP/USD’s gains. Traders should monitor key economic releases, such as US consumer price data and the Fed’s Beige Book, for further clues on the dollar’s trajectory.

Conclusion

The bullish momentum in GBP/USD is driven by a combination of US dollar weakness, favorable UK economic conditions, and global market dynamics. The dollar’s decline, fueled by concerns over Federal Reserve independence and tariff-induced uncertainty, has created a favorable environment for the pound to gain ground. Technical indicators, such as RSI and SMA alignments, support the pair’s upward trajectory, while UK economic resilience and a relatively hawkish BoE bolster sterling’s appeal. Although risks such as tariff volatility and central bank policy shifts remain, the current confluence of factors suggests that GBP/USD’s bullish run has room to continue, with key resistance levels at 1.3500 and beyond in focus. Traders should remain vigilant, leveraging technical analysis and macroeconomic developments to navigate this dynamic market environment.