Fundamental Backdrop: Fiscal Worries and Rate Cut Bets

Market attention remains focused on the latest report from the Office for Budget Responsibility (OBR), which paints a challenging picture for UK public finances. The report highlights that the country is now in a "relatively vulnerable position," with national debt at its highest level since the early 1960s. The COVID-19 pandemic and subsequent energy crisis forced the government to deploy generous fiscal support, leading to higher borrowing and the suspension of planned tax hikes and spending cuts. OBR projections show UK government debt could reach 270% of GDP by the 2070s if current policies remain unchanged—nearly triple its current level of around 95%.

Meanwhile, U.S. economic releases remain in focus: the National Federation of Independent Business (NFIB) small business optimism index ticked down from 98.8 to 98.6 (forecast: 98.7), while the Redbook retail sales index jumped 5.9% last week (prior: 4.9%). These mixed signals add to global risk sentiment.

Trade Policy Risks and Tariff Headlines

Adding to market nerves is the continued uncertainty over U.S. trade policy. President Donald Trump has once again postponed the implementation of higher import tariffs from July 9 to August 1, sending official notifications to trading partners outlining potential restrictions if agreements are not reached. The UK stands out as the first country to secure a 10% import tariff agreement, which offers some stability to the pound. However, the UK economy will still face other headwinds, such as new constraints on steel and aluminum exports.

Technical Analysis: Key Levels and Scenarios

On the daily chart, Bollinger Bands continue a moderate uptrend, but the price range is narrowing as the pair corrects lower in the short term. The MACD is falling below its signal line, maintaining a robust sell signal, while the Stochastic oscillator trends lower and approaches the 20 mark—hinting at potential oversold risks for the pound in the very near term.

  • Resistance Levels: 1.3600, 1.3632, 1.3700, 1.3750
  • Support Levels: 1.3562, 1.3500, 1.3450, 1.3400

Trading Scenarios

  • Primary Scenario (Sell Stop): Consider short positions after a confident break below 1.3562 targeting 1.3500, with a stop-loss at 1.3600. Timeframe: 1–2 days.
  • Alternative Scenario (Buy Stop): Should the pair rebound and break above 1.3600, new long positions may target 1.3700. Stop-loss at 1.3550.