Forex
GBP/USD Range Trade Reflects Vanishing Policy Rate Differential
GBP/USD has been trading within a narrow range of 1.3150 to 1.36 for six weeks, with little direction established since its recovery began at the late-June low of 1.3150.
The pair sits above its 50-day moving average and near the highs of last week's range, with only 1.3550 standing in the way before it reaches the 2026 high.
The absence of a policy rate differential is unusual among major currencies, as the Bank Rate stands at 3.75% and the Federal Reserve's target range sits at 3.50% to 3.75%, resulting in an effectively nil differential.
When the rate trade is removed, GBP/USD becomes a sentiment and flow instrument, which explains its current behavior.