The pound is technically bullish and is expected to challenge the new high of 1.2850 this year! What data should I pay attention to in the near future?

With highs higher and lows higher, the technical outlook for GBP/USD "remains bullish", City Index analysts wrote in a research note. He said the area around 1.2700 was the previous support that broke last week, and GBP/USD is now back above that area. As long as the bulls can hold on, they may see some follow-up buying, pushing the exchange rate to a new high for the year above 1.2850. Data to watch in the near future include the US ISM non-manufacturing PMI for June, the US non-farm payroll for July, and the UK labour market data for May.

According to a new analysis by retail trading house City Index, the pound remains weighed down by the bullish technical outlook, which provides some context for the recent pullback and consolidation.

Agencies say the pound is technically bullish against the dollar

With highs higher and lows higher, the technical outlook for sterling against the dollar "remains bullish", Fawad Razaqzada, analyst at City Index, wrote in a research note.

"The area around 1.2700 was the previous support that was broken last week. We are now back above this area and as long as the bulls can hold on, we may see some follow-up buying to push the pair to a new high for the year above 1.2850," Razaqzada said.

GBP/USD reached its highest level since April 2022 at 1.2850 on June 16, but retreated somewhat in the following days as the dollar staged a broader rally, linked to the Federal Reserve's awareness of further rate hikes in response to better-than-expected economic data. However, the pullback was relatively minor, allowing GBP/USD to stabilize again around 1.27.

But according to Razaqzada, holding on to the 1.27 level will be an important condition for continued bullish growth. "But what the bears want is to close below 1.27 and push rates below the 1.2600 support," he said.

Yields on two-year UK government bonds have proved attractive to yield-hungry international investors and are still near their highest levels since 2008 as markets begin to digest the impact of further interest rate rises by the Bank of England.

Michael Cahill, FX analyst at Goldman Sachs, said: "We think sterling should perform better because real interest rates need to move higher."

Recent data affecting the pound against the dollar

Much of what happens to the pound against the dollar in the near future depends on the US side, as the first major data for the pound this month will not be released until July 11, which is the UK labour market data for May. In addition, at 22:00 Beijing time on July 6, the US will release the ISM non-manufacturing PMI for June, which is another important recent data affecting the movement of the pound against the dollar.

"While US manufacturing activity has been weakening, the services PMI has been above the expansionary level of 50.0 for the past three months - albeit only slightly above 50.0," said Mr. Razaqzada. "If we start to see the services sector come back to life in the face of high interest rates, then that should keep the doves on the FOMC quiet for at least a few more months. However, if the services PMI also turns lower, then that would set off recession alarm bells and could weigh on the dollar."

On July 7 at 20:30 Beijing time, the US will release its non-farm payrolls report for July. With last week's survey data mostly positive, indicating that the economy continues to exceed expectations, the non-farm payrolls report is expected to be strong again.

"The US jobs market is particularly strong, with non-farm payrolls beating expectations for 14 straight months! Will this trend continue? If so, it will mean that interest rates are likely to remain higher for a longer period of time," Razaqzada said. "This could benefit the dollar in the short term, even if longer-term high rates may end up hurting the economy at some point later."

GBP/USD daily chart

At 10:12 on July 6, Beijing time, the pound was trading at 2706/07