Sterling moved higher on Tuesday after three weaker sessions, with GBP/USD recovering toward 1.3450. The pound gained around 0.15% to $1.3451, helped by a softer US dollar and UK borrowing figures that came in better than expected.
This analysis from mlgoldcorp.com examines whether GBP/USD can move through 1.3500, or whether high borrowing costs and fiscal uncertainty could limit the recovery.
Sterling Finds Some Stability
UK public borrowing fell to £16 billion in June, around one-third lower than a year earlier and below the £18 billion economists had expected.
Stronger tax receipts and lower inflation-linked debt costs contributed to the improvement. The result did not remove the wider fiscal challenge, but it offered some reassurance after recent concern about government spending had pushed gilt yields higher and sterling lower.
The Chart Still Favors a Recovery
GBP/USD remains above several important support levels despite its recent pullback.
The 20-day Exponential Moving Average is the first technical reference point. Continued trading above it would suggest the latest decline was a correction rather than the start of a larger reversal.
The 50-day EMA provides broader support. With the shorter average still above the longer one, the medium-term structure remains constructive.
However, the pair has struggled to hold gains above 1.3450. Buyers still need a stronger close through resistance before the rebound looks established.
Image 1: GBP/USD Daily Chart With the 20-Day and 50-Day EMAs, Support at 1.3400 and Resistance Near 1.3450
RSI Shows Moderate Buying Momentum
The 14-day Relative Strength Index has recovered with the price but remains below overbought territory.
A reading above 50 would indicate that buying momentum is outweighing selling pressure. A rise toward 60 to 65 could support another attempt at 1.3500.
If RSI falls below 50 while GBP/USD slips under support, the recovery would look less convincing.
Resistance Builds Around 1.3450
The first barrier sits near 1.3450, close to Tuesday’s trading level.
A confirmed daily close above it could open the way toward the psychological 1.3500 level.
If GBP/USD clears 1.3500, the next targets may appear around 1.3550 and 1.3600.
The 1.3600 region would probably require continued dollar weakness, stable gilt markets, or further evidence that the UK fiscal position is improving.
The main resistance levels are 1.3450, 1.3500, 1.3550, and 1.3600.
Support Remains Near 1.3400
Immediate support is located around 1.3400. A limited retreat toward this level would still fit with the current recovery.
Below 1.3400, attention may shift toward 1.3350, an area linked to earlier consolidation and the short-term moving averages.
A sustained break beneath 1.3350 could expose 1.3300. Further weakness toward 1.3250 would damage the recent pattern of higher lows.
Image 2: GBP/USD Four-Hour Chart With RSI, Support at 1.3400 and 1.3350, and Resistance at 1.3450 and 1.3500
Gilt Markets Remain Important
The benchmark 10-year gilt yield fell by around one basis point to 5.025% on Tuesday after rising sharply during the previous session.
That suggests some immediate concern surrounding fiscal policy has eased. Even so, borrowing costs remain high, and interest payments in June were still the fourth highest recorded for that month.
If gilt yields rise again, sterling could struggle as investors become more concerned about the cost of financing government spending.
Wage Growth Adds to the Rate Debate
UK wage growth remained at 3.4% in the three months to May.
Steady wages may support consumer spending, but they can also keep services inflation elevated. That leaves the Bank of England balancing weak growth against persistent price pressure.
Higher rate expectations may support sterling by making UK assets more attractive. However, excessive borrowing costs could weaken the economy.
The Dollar Is Still a Risk
GBP/USD has also benefited from a softer dollar, but the US currency remains supported by high Treasury yields.
The US 10-year Treasury yield recently traded near 4.59%, while the probability of a September interest-rate increase rose to around 63%.
If US yields remain elevated, the dollar may regain strength and limit sterling’s advance.
Trading Implications
GBP/USD maintains a cautiously bullish bias while trading above 1.3350 to 1.3400.
A confirmed break above 1.3450 could expose 1.3500 and 1.3550. Improving RSI and stable gilt yields would strengthen that scenario.
A move below 1.3400 would weaken the recovery, while a break beneath 1.3350 could return the pair toward 1.3300.
Conclusion
GBP/USD has recovered toward 1.3450 as improved UK borrowing data and a softer dollar provide support.
Resistance is positioned at 1.3450, 1.3500, 1.3550, and 1.3600. Support can be found near 1.3400, 1.3350, 1.3300, and 1.3250.
The chart remains constructive, but the reaction around 1.3450 and the direction of UK gilt yields will help determine whether sterling can extend the recovery.
