Pound Sterling (GBP) is expected to trade between 1.3130 and 1.3190 in the short term. In the long term, it is anticipated to edge higher within a range of 1.3065 to 1.3230, as per UOB Group’s analysts Quek Ser Leang and Peter Chia.
In the past 24 hours, GBP edged higher to reach 1.3191, closing at 1.3178, marking a 0.10% increase. Despite this movement, there is no substantial increase in upward momentum, and it is likely to continue trading within a range from 1.3130 to 1.3190.
Forecast for Pound Sterling
In a one to three weeks view, previous analysis from last Friday indicated that any recent GBP weakness had ended. GBP might recover further but is expected to be part of a defined range of 1.3050 to 1.3220. This forecast has now been refined to a narrower range of 1.3065 to 1.3230.
Based on the view that recent weakness in the pound has ended, we expect GBP/USD to move higher but stay contained within a 1.3065 to 1.3230 range over the next one to three weeks. There is no strong upward momentum, so this suggests a slow grind rather than a sharp rally. This outlook is supported by recent economic data that creates a stable, rather than volatile, environment for the currency pair.
The latest UK inflation figures released last week showed the headline Consumer Price Index (CPI) at 2.1%, just above the Bank of England’s target. This has led the market to believe the BoE will remain on hold through the end of the year, limiting the pound’s breakout potential. This contrasts with the rate hike frenzy we saw back in 2023 when inflation was a much bigger concern.
On the other side of the pair, recent US jobs data showed steady but unspectacular growth, and US inflation has also cooled considerably over the past year. This means the Federal Reserve is also in a holding pattern, preventing the dollar from gaining significant strength. With both central banks appearing neutral, it reinforces the case for range-bound trading in the near term.
Trading Strategies
For traders, this environment suggests selling options could be an effective strategy to generate income. We believe selling out-of-the-money put spreads with a bottom strike below the 1.3065 floor would be a prudent way to collect premium. This profits from time decay and the view that the pair will not break down through established support.
Alternatively, for those wanting to position for the modest upside, a bull call spread is worth considering. One could buy a call option and simultaneously sell a higher-strike call option with an expiration in the coming weeks. This defines the risk and caps the potential profit, aligning perfectly with the expectation of a limited move up towards the 1.3230 resistance level.
Implied volatility for GBP/USD options has been trending lower, recently hitting lows not seen since before the market turmoil of late 2022. This lower volatility makes option selling strategies like iron condors more attractive, as the premiums collected can offer a reasonable return in a sideways market. It signals that the market is not expecting any major price swings in the immediate future.
