GBP/USD Targets as Buyers Defend Key Rectangle Pattern Support

Market Overview

The GBP/USD pair began the week on a firmer footing, capitalising on a weaker US dollar, as broader trade policy uncertainty weighed on the greenback. Over the weekend, US Commerce Secretary Lutnick indicated that tariffs on Canadian and Mexican imports would proceed as planned. However, the final rates might fall below the initially proposed 25% threshold, offering a partial reprieve to market sentiment.

This moderate shift in trade rhetoric, combined with dollar weakness across the board during the Asian and early European sessions, provided support to GBP/USD. Meanwhile, Sterling gained additional momentum, partly due to a stronger euro, following higher-than-expected Eurozone inflation data, which encouraged traders to reassess the relative strength of the pound versus the dollar.

Additionally, the pound benefitted from better-than-anticipated UK PMI data, which, while still within contraction territory, showed signs of stabilisation in the manufacturing sector, improving confidence in the short-term economic outlook for the UK.

Technical Analysis

On the three-hour chart, GBP/USD has been consolidating within a defined rectangular range for the past ten trading days. The support zone at 1.25587 has held firm despite multiple tests, signalling the presence of committed buyers at lower levels.

With buyers successfully defending the range floor, the pair broke above short-term resistance at 1.26213, pushing the price above the 50-period and 100-period moving averages. This breakout has paved the way for a test of the first upside target at 1.26383, representing the upper boundary of a minor consolidation zone within the broader rectangle.

If bullish momentum persists, a clean break above 1.26383 could open the path for a rally towards 1.26600, followed by 1.26839, which aligns with the upper boundary of the rectangle pattern. Both the RSI, trending above 50, and the MACD, accelerating above the zero line, confirm the strengthening bullish momentum.

However, should sellers regain control, a return below 1.25974 would put the focus back on the key floor at 1.25587, where a decisive breakdown could trigger a larger corrective move lower.

Key Technical Levels

• Resistance Levels: 1.26383, 1.26600, 1.26839
• Support Levels: 1.25974, 1.25587

Fundamental Drivers

Sterling’s upside bias has been supported by the latest UK Manufacturing PMI from S&P Global, which, despite remaining in contraction territory, exceeded market expectations, showing tentative signs of improved activity within the sector. This added short-term optimism to the pound’s outlook.

Later today, market attention will shift to the ISM Manufacturing PMI for February, one of the most closely-watched indicators for the US economy. Given the recent weakness in US services data, any further downside surprise in the manufacturing PMI could further undermine the dollar, potentially strengthening GBP/USD further.

At the same time, any upside surprise in the ISM report, particularly in new orders or employment components, could rekindle expectations that the Federal Reserve may maintain its restrictive stance for longer, supporting the dollar and capping GBP/USD gains.

Conclusion

GBP/USD is testing the upper half of a defined trading range, with buyers firmly in control above 1.26213. The pair’s short-term direction will largely hinge on the ISM Manufacturing PMI and the broader risk sentiment tied to evolving US trade policy expectations.

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