Sterling’s Steady Ascent: Pound Eyes Breakout Levels

Sterling extended its upward momentum on Monday, climbing to a one-week high against the US dollar. The pound has now pushed above several key long-term moving averages, which are beginning to slope upwards – a sign that a more bullish technical backdrop may be forming. Momentum indicators are also improving, with the 14-day RSI edging higher, yet still within neutral territory, leaving room for additional gains before conditions become overbought.

For the rally to gather real traction, a decisive break above $1.36 would be needed, paving the way for a potential retest of this year’s high near $1.38. Traders will be eyeing Friday’s crucial US non-farm payrolls release as the main catalyst for volatility, with the potential to spark a clear directional breakout. Initial support rests at $1.3480, while resistance is layered at $1.3600 and $1.3685.

Sterling vs the Euro: Mixed Signals

Sterling’s performance against the euro looks less convincing. The pair has failed to notch a new weekly high for three consecutive weeks, with daily highs capped over the past four sessions. Strong resistance at €1.16 remains a significant barrier, curbing upward momentum.

There are, however, tentative signs of support. The 21-day moving average has started to point higher and could soon cross above the 50-day – a potential bullish signal. Even so, multiple overhead resistance levels from longer-term averages mean that progress towards €1.18 will likely be gradual and hard-won. For now, the range between €1.1520 support and €1.16 resistance continues to define price action. A push beyond €1.1625 would be the first sign of a more constructive bias.

Macro Backdrop: Yields vs Growth Concerns

Rate differentials still tilt in Sterling’s favour, with the Bank of England maintaining a relatively hawkish stance compared with many of its peers. This offers some support for the pound via the yield channel. Yet confidence remains fragile, underpinned by the UK’s sluggish growth outlook and persistent inflation pressures, both of which cast doubt over the sustainability of a bullish trend.

Euro Tests Higher Ground Against Dollar

The euro began the week on the front foot, rising around 0.4% in Asian trading before giving back some gains later in the session. The move was driven largely by US dollar weakness after a federal appeals court ruled that former President Trump’s universal tariffs were unlawful. However, since the tariffs remain in place for now, market reaction was restrained. Investors remain firmly focused on upcoming US data, with Friday’s non-farm payrolls expected to show a modest improvement. Even so, August could mark the fourth consecutive month of sub-100,000 job growth – a scenario that may lend the euro further support.

In Europe, unemployment edged down to 6.2%, highlighting the resilience of the bloc’s labour market despite global headwinds. This relative strength may encourage the European Central Bank to hold off from further easing this year. Still, ongoing trade negotiations present a significant risk – any breakdown could force emergency measures.

On Monday, ECB policymaker Isabel Schnabel struck a particularly hawkish tone, echoing parts of Jerome Powell’s Jackson Hole speech. She argued that structural forces such as labour shortages, climate change, and geopolitical fragmentation are likely to keep inflation pressures elevated. In her view, the so-called neutral rate is no longer as low as it once was, suggesting monetary policy will need to remain tighter for longer.

Technically, the euro has managed to edge above the upper boundary of August’s trading range between $1.16 and $1.17, but strong resistance quickly capped further upside. A decisive catalyst will be needed to sustain momentum, with this week’s series of US labour market releases – starting with Wednesday’s JOLTS survey – providing the next major test.

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