GBP/USD, USD/JPY Forecast: Two trades to watch

GBP/USD rises as the mood improves, BoE speakers on tap

• The Israel–Iran ceasefire boosts the mood, USD falls
• BoE speakers come after Bailey sees the path for rates as downwards
• GBP/USD rises for a third day, pushing above 1.36

GBP/USD is rising for a third straight day and is holding above the 1.36 level after reaching 1.3648 yesterday, its highest level since February 2022.

The pound is rising on an improved market mood amid easing tensions in the Middle East. President Trump announced that the ceasefire has taken effect, raising optimism that the 12-day conflict is over. However, this is a fragile ceasefire, so developments will be watched closely.

With tensions easing in the Middle East, attention is returning to monetary policy. Gains in sterling could be limited following Bank of England governor Andrew Bailey's comments yesterday, which indicated that interest rates are likely to continue their downward path, albeit cautiously, amid signs that the UK labour market is softening.

Inflation in the UK remains above the bank's 2% target at 3.4% in May. The BoE left interest rates unchanged at 4.25% in its latest meeting, and the market is anticipating another rate cut in August.

Bailey acknowledged growing evidence may support a shift towards looser monetary policy. Bank of England deputy governor David Ramsden was more explicit, noting that there were clear signs of weakening in the labour market, and he was concerned that inflation would fall below the central bank's forecast. Dave Ramsden caught the markets off guard last week when he unexpectedly voted to cut rates by 25 basis points.

The UK economic calendar is quiet today, attention will be on more Bank of England speakers, with BoE Deputy Governor Claire Lombardelli and Chief Economist Huw Pill due to speak shortly.

GBP/USD forecast – technical analysis

After a brief spike lower to test the 50 SMA, GBP/USD has recovered, re-entering the multi-month rising channel and surging to test the 1.36 resistance zone.

A close above the 1.36 resistance could encourage the bulls to extend gains towards 1.37 and 1.3750, a level that was last seen in 2022.

Support can be seen at 1.3525, the 20 SMA. Below here, 1.3450, the April high, and below, where the 50 SMA at 1.34 comes into play. The price has traded above this dynamic support since mid-February. A break below here creates a lower low.

USD/JPY rises ahead of Powell’s testimony

• Yen weakens on safe haven outflows
• USD looks to Powell's second day of testifying to Congress
• USD/JPY trades in a familiar range

USD/JPY is rising modestly as the Japanese yen remains on the back foot, climbing towards the mid-145 level. Optimism surrounding the Israeli round ceasefire supports a positive risk tone, which is acting as a headwind to the traditional safe-haven yen.

More Eva, the summary of opinions from the Bank of Japan meeting showed that some policy makers have called for interest rates to remain unchanged for the time being due to uncertainty over the impact of US tariffs on the Japanese economy. This has also prompted some selling around the yen.

Gains in the pair could be limited given weakness in the US dollar against its major peers. The improved market mood is also hurting demand for the reserve currency.

Attention will be on Federal Reserve Chair Jerome Powell's second testimony before Congress. Yesterday, Powell reiterated that he was in no rush to cut interest rates until later in the year when the data will start to show the impact of tariffs on inflation. He highlighted that the inflation data for June and July would be important for assessing the impact of tariffs on inflation.

However, a growing chorus of Fed officials are open to cutting rates earlier. Michelle Barham and Christopher Waller have said that they could consider cutting rates as soon as July if inflation remains low.

USD/JPY forecast - technical analysis

USD/JPY trades within a familiar range. The price recovered from the 142.50 region to test resistance at 146.00. While the price briefly spiked through this level, the price closed below this resistance.

Buyers will need to close above 146 to build momentum towards 148.50, the May high.

Meanwhile, sellers would need to break below 142,50 to create a lower low and open the door towards 140.00.