British GBP/USD Exchange Rate (GBP/USD) Rally Stalls as Resistance Levels at 1.7250 then 1.7400 Strike

The US dollar continues to rally at the present time and remains one of the favourites in global FX for coming days; thus a sustained advance in GBP/USD looks unlikely at present.

At the time of writing the pound to US dollar (GBP/USD) is trading lower and is now quoted at 1.7038.

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Bank of England Minutes fail to stop the GBP decline

This week's BoE MPC Minutes revealed the interest rate setting committee voted unanimously to leave monetary policy unchanged.

With nothing particularly hawkish from the minutes, the mildly corrective tone in GBP resumed.

Market focus will turn to UK retail sales on Thursday. The market is expecting a slight rebound of 0.3% m/m after the drop in May.

"But given the sentiment towards GBP has softened recently, the absence of an upside surprise today will likely see GBP continue trade with a heavy tone, but we suspect downside will be limited ahead of tomorrow’s first estimate of Q2 GDP," say Lloyds Bank Research.

Ahead of the BoE minutes Kathy Lien at BK Asset Management noted that sterling was already under pressure:

"The British pound extended its losses against the U.S. dollar for the fourth consecutive trading day as investors cut their long positions ahead of the Bank of England minutes. The minutes are the most important event risk for sterling this month because the mixed messages from policymakers have left investors confused on how serious the central bank is about raising interest rates in late 2014, early 2015."

Over the past month, we have seen deterioration in trade activity, decline in retail sales and drop in the PMI index, making investors worried about a less hawkish bias.

According to a comment issued by forex brokerage Afex further consolidation in the GBP to US dollar is possible at this stage:

"Sterling weakness remains corrective in the broader sense but the proximity of two resistance levels – at 1.7250 then 1.7400 - could well slow further gains in the near term. On this basis, risk exists for some downside moves over coming sessions.

"Sterling prices have not yet fully established themselves above the psychological 1.7000 level and so dips back towards 1.6875 may develop before stronger support surfaces again. NB: unless/until secondary support at 1.6700 gives way as well, no obvious medium term top is likely to form and once the market finds support, a 1.7500 target comes into view."

Commenting on the prospects of the pound sterling in the week ahead, Lloyds Bank Research tell us:

"GBP/USD broke lower on Friday, making a low of 1.7037. GBP had been trading with a mildly corrective tone last week. That was helped by the paring back of rate hike expectations following the weaker earnings data, which provided further evidence that despite the jump in the June CPI, underlying inflationary pressures in the UK economy remain benign.

"There are a number of key releases from the UK this week, which will determine the tone for GBP. BoE MPC minutes, retail sales and the first estimate of Q2 GDP provide plenty of potential to move GBP.

"IMM data shows GBP long positions declined further in the week to 15 July, and the break lower in GBP/USD on Friday will likely have triggered further squaring of GBP longs. With GBP long positioning now a lot lighter, GBP will probably be more sensitive to positive data surprises than before. However, a lack of positive surprises will likely see the mild corrective bias in GBP persist."

On the data front we have GDP due for release later in the week.

Carly Hasty at Smart Currency Business says:

"Friday could be the day that the UK officially ends the longest depression in British economic history as the UK growth figures should push the economy above the pre-crisis peak.

"Sterling continues to benefit from this positive sentiment as we saw it hit a six year high against the US dollar and continue its upward trend against the euro.

"This week is a busy week for data both here and elsewhere in the world. Monetary policy meeting minutes are released on Wednesday which should give us more of an insight into when we could expect a UK interest rate hike especially after the higher than expected inflation figures last week."