GBP/USD retakes 1.2800 and above

GBP/USD manages to keep the bullish bias despite the decent bounce in the US Dollar, navigating the area above 1.2800 the figure as investors continue to assess the ongoing US-China trade war. US doubles the bet, announced 125% levies on Chinese imports. 

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50 despite the latest rebound, suggesting that buyers remain reluctant to commit to a steady recovery in Pound Sterling.

The 200-day Simple Moving Average (SMA) aligns as a key pivot level at 1.2815. In case GBP/USD confirms this level as support, sellers could move to the sidelines. In this scenario, 1.2880 (static level) and 1.2920 (20-day SMA) could be seen as next resistance levels. On the downside, supports align at 1.2750 (50-day SMA) and 1.2640 (100-day SMA) if the 200-day SMA is confirmed as resistance.

Fundamental Overview

The strong selling pressure surrounding the US Dollar (USD) helped GBP/USD find support on Tuesday. Growing expectations for a downturn in the US economy on US President Donald Trump's aggressive policy continue to weigh on the USD.

Senior officials from China’s State Council, alongside several government and regulatory bodies, will reportedly hold a meeting to discuss how to respond to Trump’s tariffs on Wednesday. In case China retaliates and leaves the door open to a further escalation in the conflict, the USD could continue to weaken.

Meanwhile, market participants see the UK economy taking a hit from the trade war and now expect the Bank of England (BoE) to adopt a dovish stance in the second half of the year. "Interest rate futures pointed to about 95 basis points of reductions to the BoE's benchmark Bank Rate by December, compared with around 78 bps on Tuesday as financial markets braced for a hit to economic growth," Reuters reported.

In the absence of high-impact data releases, the risk-averse market atmosphere, combined with dovish BoE expectations, could limit GBP/USD's upside in the near term.