FX.co ★ GBP/USD – Smart Money Analysis: The Pound Maintains Its Upward Momentum

The GBP/USD pair began to rise after sweeping liquidity from the latest bearish swing. Over the past three days, the pound has posted a confident advance, which could invalidate Imbalance 30, as it has failed to produce a convincing price reaction. This would be the first step toward the formation of a bullish trend. In addition, the first bullish imbalance in a long time could form as early as today. It would subsequently act as a support zone and provide buy signals. Finally, there is another important factor. The reversal in favor of the pound did not occur following strong UK data or weak US data. Instead, it took place after three strong US inflation reports that could easily have supported the bears again. However, on Wednesday, the price swept liquidity from the June swing, triggering a sharp and powerful rise in the British currency. As a reminder, the chart clearly shows that almost all significant reversals over the past year have occurred after liquidity sweeps, while the pound has remained in a range for an entire year.

It is worth noting that traders expect the Bank of England to tighten monetary policy two or three times, while the Federal Reserve is expected to do so only once or, at most, twice. The dot plot also points to one rate hike, and the latest FOMC minutes confirmed that most central bank policymakers expect just one 0.25-percentage-point rate increase. Of course, the outlook for 2027 remains uncertain, but this is the weighted-average forecast at present. Consequently, the Bank of England could ultimately raise interest rates more aggressively than the Fed in the coming months, which is unlikely to support further gains in the US dollar.

Had the Fed not decided to raise interest rates in September and signaled its willingness to continue tightening monetary policy, a decline in the US dollar would have been expected a month ago. That outlook remains unchanged. The pair has reversed in favor of the pound, and now only one step remains: the formation of new bullish patterns that bulls can use to open long positions. The pound's long-term outlook remains bullish.

Do the bears have any further potential? There appears to be little. Over the past month and a half to two months, the bears seem to have accomplished the seemingly impossible by pushing the dollar to levels that are exceptionally high by current standards. It is worth remembering that the market has had reasons to buy the dollar recently, but there have also been reasons for the British currency to appreciate that traders have simply overlooked. Consequently, a reversal in the opposite direction may now begin, with a much stronger fundamental justification than the preceding decline.

There was no significant economic news on Monday, while bullish traders continued to exert modest upward pressure on the price. There are good reasons for them to maintain this pressure throughout the week, although a series of relatively important UK economic reports could influence market sentiment. The most important report, covering inflation, will be released on Wednesday.

The overall fundamental backdrop remains such that, over the long term, a decline in the US dollar appears to be the only plausible scenario. The war between Iran and the United States has not changed this outlook. Geopolitical developments prompted the market to refocus on the dollar's safe-haven status for several months, but the conflict has already passed its most acute phase. The outlook for FOMC monetary policy remains uncertain, while the market continues to anticipate only further tightening, which is the main reason for the bears' confidence. However, traders still fail to account for the possibility of monetary policy tightening by the Bank of England, as reflected in several recent speeches by Monetary Policy Committee (MPC) members. Inflation in the UK is rising, as it is around the world, leaving the Bank of England with few alternatives to raising interest rates as well.

Economic Calendar for the US and the UK:

• United Kingdom – Unemployment Rate (06:00 UTC).
• United Kingdom – Average Earnings Change (06:00 UTC).
• United Kingdom – Change in the Number of Jobless Claims (06:00 UTC).
• United States – Building Permits (12:30 UTC).
• United States – Housing Starts (12:30 UTC).

On October 20, the economic calendar contains five notable releases, with UK data standing out. Economic data could influence market sentiment on Tuesday, particularly during the first half of the day.

GBP/USD Forecast and Trading Recommendations:

The long-term outlook for the pound remains bullish. Bears have controlled the market in recent weeks, but the range remains clearly visible on the daily chart. A liquidity sweep of the swing formed on May 1 triggered a new decline within the horizontal channel, while a sell signal within Inverted Imbalance 27 allowed the decline to continue. However, liquidity was swept below the June lows, giving bulls a strong opportunity to regain control. The bearish imbalance could be fully invalidated as early as today, marking the first step toward the formation of a bullish trend. Therefore, traders are advised to wait for bullish patterns and signals that could help return the pound to its August highs.