Despite technically being down 0.2% at 1.2779 in Monday trading, GBP/USD remains entrenched within its recent range, supported by the daily cloud top at 1.2706 and capped by the descending 10-day moving average (DMA) currently at 1.2841. Given the current gloomy macro outlook, risks may be tilted to the downside, especially following the recent 25 basis point rate cut by the Bank of England (BoE).

Amid the turmoil in global markets, particularly after Friday's soft U.S. payroll report, GBP/USD is holding up relatively well. This resilience is largely due to short-term interest rate (STIR) futures indicating a less dovish BoE rate path in the near term. According to LSEG's IRPR pages, the market is pricing in slightly more than two additional 25 basis point BoE cuts in 2024. In contrast, the Federal Reserve is expected to cut rates by 50 basis points in both September and November, with a further 25 basis point cut in December.

The disparity in rate cut expectations between the BoE and the Fed is likely to keep the pound relatively well supported in the near term. UK Sonia futures are currently pricing rates 50 basis points higher than equivalent U.S. SOFR futures in 2025. However, should upcoming UK output and CPI data in mid-August indicate declining inflation and growth, traders may ramp up expectations for BoE rate cuts, aligning them more closely with Fed expectations. This could prompt GBP bears to test the daily cloud top support, bringing early-July lows around 1.26 into focus.

EUR/USD Erases Most Early Gains Amid Improved Risk Sentiment

EUR/USD initially rallied in New York trading, opening near 1.0950 after hitting 1.08938 overnight on EBS. The rally extended with the pair reaching 1.1009, helped by U.S. dollar sales and tighter German-U.S. spreads. However, some of these gains were erased as risk sentiment improved following the U.S. July ISM non-manufacturing PMI report.

The unwinding of carry trades abated, with USD/JPY nearing 145.00 and USD/CNH approaching 7.1400. Stocks and gold bounced off their lows, and EUR/JPY traded above 158.00 late in the session. Consequently, EUR/USD slid from its high, settling near 1.0955, up only 0.41% late in the day.

Technically, the outlook for EUR/USD leans bullish. The trend line off the 2023 highs was pierced, and both daily and monthly RSIs are rising. Upcoming events such as China's July trade report and the Reserve Bank of Australia's policy meeting may impact risk sentiment in Asia, influencing EUR/USD movements.

Overall, while GBP/USD holds its ground amid diverging rate expectations, EUR/USD's performance will be closely tied to broader market risk sentiment and upcoming economic data releases.

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