• GBP/USD retreats slightly from over a two-month high, touched on Wednesday.
• The supportive fundamental backdrop warrants some caution for bearish traders.
• The bullish technical setup backs the case for the emergence of some dip-buying.

The GBP/USD pair attracts some sellers on Thursday and erodes a part of the previous day's strong gains to an over two-month high, around the 1.3555-1.3560 region. Spot prices stick to modest intraday losses around the 1.3525 zone through the first half of the European session, though the broader setup favors bullish traders and warrants caution before positioning for any further fall.

As investors digest this week's soft US Consumer Price Index (CPI) and Producer Price Index (PPI) reports, elevated crude oil prices revive energy-driven inflation fears and US Federal Reserve (Fed) rate hike expectations. This, along with escalating US-Iran tensions, offers some support to the safe-haven US Dollar (USD) and turns out to be a key factor exerting pressure on the GBP/USD pair.

The British Pound (GBP), on the other hand, might continue to draw support from easing UK political uncertainty and growing optimism over the UK's fiscal outlook. In fact, the incoming UK Prime Minister, Andy Burnham, has pledged to anchor his policy agenda on fiscal discipline and is expected to pick a fiscally conservative finance minister. This helps limit the downside for the GBP/USD pair.

From a technical perspective, the overnight breakout through the 61.8% Fibonacci retracement level of the May-June fall was seen as a fresh trigger for bulls against the backdrop of the recent repeated rebounds from the 1.3350 confluence. A subsequent strength beyond the 1.3500 psychological mark validates the constructive outlook for the GBP/USD pair and backs the case for further gains.

Moreover, the Moving Average Convergence Divergence (MACD) histogram is positive, and the line remains above zero. That said, the Relative Strength Index (RSI) at 72.2 signals overbought conditions that could slow the pace of gains rather than reverse the broader constructive tone. This makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up.

Meanwhile, immediate resistance is seen at the 78.6% Fibo. level at 1.3547, ahead of the recent cycle high, and at 1.3657, which would be the next target if bulls extend control. On the downside, initial support is located at the 61.8% retracement at 1.3461, followed by the 50.0% level at 1.3401. Deeper pullbacks would find a stronger demand around the 200-period SMA and the 38.2% level confluence at 1.3345-1.3340.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

GBP/USD 4-hour chart