GBP/USD Price Forecast: Rally pauses below 1.3700

The British Pound (GBP) maintained a slight edge against the US Dollar (USD) during Tuesday's European trading session, hovering around 1.3640, even as the US Dollar Index (DXY) showed a marginal uptick. Despite market experts anticipating the Bank of England (BoE) to keep interest rates unchanged in the near term, the Pound Sterling rose, driven by a UK inflation report for July that largely met expectations.

The headline Consumer Price Index (CPI) rose to 2.9% year-over-year (y/y), with core inflation at 2.6% y/y, primarily due to a 13% hike in the Ofgem energy price cap from July 1. Danske Bank analysts noted that this inflation data, combined with yesterday's weak labor market figures, has taken the upper hand off BoE pricing for the rest of the year.

The US Dollar, on the other hand, climbed against its peers as investors worry that fresh US sanctions on Iran might drive oil prices up and subsequently US Treasury Yields. GBP/USD traded at 1.3640, retaining a bullish outlook in the short term, with the price staying above the 20-day Exponential Moving Average (EMA) at 1.3531, which bolsters an underlying supportive structure following the recent surge.

The Relative Strength Index (14) was near 69, indicating robust upside momentum, although it is nearing overbought levels, suggesting gains might become more gradual if buyers pause before the arrival of new stimuli. The immediate support level for GBP/USD is the 20-day EMA at 1.3530, and a break below this level could open the door for a deeper correction towards prior lows not visible in the current indicator set.

As long as GBP/USD stays above this moving average, the overall positive tone is expected to continue, with any minor retracements viewed as temporary corrections within the ongoing uptrend. Analysts at Scotiabank describe the current technical conditions for GBP/USD as "solidly bullish," stating that following a period of trading range and two tests of 1.3150 (in April and June), the pair now appears well-positioned for an upward move.

They argue that a sustained break above 1.3650/60 could pave the way for further appreciation toward the 1.41 zone over the course of the year, reinforcing their belief that the underlying trend dynamics continue to favor a stronger Pound.