On Thursday (July 16), during the European trading session, the pound sterling remained above 1.35 against the dollar, hitting a two-month high. This was driven by two factors: investors continuing to lower their expectations for a Federal Reserve rate hike, and positive market news regarding the selection of the new UK Chancellor of the Exchequer. Reports that Prime Minister-designate Andy Burnham will appoint Home Secretary Shabana Mahmoud as Chancellor of the Exchequer have calmed market sentiment and eased concerns. Previously, the market had worried that Burnham would nominate a candidate with a stronger fiscal expansionist stance, such as Ed Miliband. Following this news, UK government bond yields declined slightly. Meanwhile, UK GDP data showed that the economy returned to growth in May after contracting in April. May GDP rose 0.1% month-on-month, exceeding market expectations of flat growth; April GDP declined 0.1% month-on-month, making this figure better than expected. Breaking down the core data, the service sector, which accounts for about 80% of the UK economy, grew 0.3% month-on-month; however, construction output declined 0.8%, and industrial output fell 0.5%, indicating an uneven recovery in the UK economy. Looking ahead, renewed tensions in the Middle East could cast a shadow over the economic outlook. Rising international oil prices to monthly highs are both dragging down the economic outlook and increasing the risk of rising inflation. Rising oil prices have further strengthened market expectations that the Bank of England will tighten monetary policy this year. The market has already fully priced in a 25 basis point rate hike in November and anticipates another hike in March 2027. Conversely, the US dollar fell to a monthly low, dragged down by weaker-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) data this week, coupled with weak employment data last week. A series of weak data points have led investors to believe that the Federal Reserve will not raise rates in July. Current market pricing indicates a roughly 70% probability of a 25 basis point rate hike by the Fed in September. However, the downside for the dollar may be limited: a renewed escalation of the US-Iran conflict could boost safe-haven buying of the dollar; and continued oil price increases could reignite inflation concerns, driving up US Treasury yields and indirectly supporting the dollar. The market is currently focused on today's US retail sales data: the market expects June retail sales to rise 0.2% month-on-month, compared to a previous increase of 0.9%. Stronger-than-expected data could provide support for the dollar. Technical Analysis (GBP/USD Daily Chart Source: FX678) The British pound rebounded from the 1.3200 support level against the US dollar, breaking through the 200-day moving average and a multi-month downtrend line, reaching a high of 1.3550. This effective breakout, coupled with the Relative Strength Index (RSI) holding above 50, indicates a bullish short-term technical outlook. The initial bullish target is the 1.3600 level, with the next resistance at the May high of 1.3650; a break above this level would open up upside potential to 1.3800. Initial support is at 1.3500, which previously acted as trendline resistance but has now become support. A break below 1.3500 would see support at the 200-day moving average around 1.3400, followed by the 1.3340 level; a breach of this level would likely lead to a retest of the 1.3200 support zone.