GBP/USD Outlook: Key Order Block Tested Ahead of US PPI Data

The GBP/USD pair experienced a sharp reversal, declining by 190 pips following a brief early-week attempt at recovery. The downturn was primarily driven by renewed broad-based demand for the US dollar after US October inflation rose by 0.4% month-over-month. Despite strong UK macroeconomic data releases, aggressive dollar buying dominated price action across foreign exchange markets.

BoE Hawkish Outlook vs. Economic Indicators

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From a fundamental perspective, the British pound retains underlying structural support. Analysis from the National Institute of Economic and Social Research (NIESR) indicates that UK inflation could reach 5% next year, potentially requiring the Bank of England (BoE) to raise interest rates three to four times. Recent UK GDP data across annual, quarterly, and monthly metrics delivered strong readings, while September industrial production also beat expectations. However, traders largely overlooked these positive indicators during Thursday's session.

Central Bank Policy Divergence

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The monetary policy trajectory between central banks continues to favor the pound over the medium to long term. Following the BoE's recent unanimous vote to tighten policy, market expectations point toward at least three additional rate increases from the UK central bank. In contrast, the Federal Reserve is projected to raise rates only once or twice. This divergence in interest rate forecasts suggests that US dollar upside may be constrained over a longer horizon.

Geopolitical Drivers and Downside Risks

Geopolitical developments have provided temporary support to the US dollar's safe-haven status. However, recent rhetoric surrounding US-Iran relations has focused more on negotiation and potential concessions rather than immediate escalation. Unless active military operations resume or unexpected strikes are launched, safe-haven demand for the dollar is expected to remain contained, limiting the bears' capacity for a sustained breakdown.

Technical Outlook and Support Levels

From a technical perspective, GBP/USD remains bound within a established daily trading range. Following a brief bullish reaction at Imbalance 32, the pair retreated toward a significant institutional order block, which serves as key structural support. If this order block holds, a bullish rotation back toward the upper boundary of the daily trading range at 1.3670 remains the primary upside scenario. A failure to hold this zone, however, could expose the pair to further downside despite supportive domestic fundamentals.

Upcoming Economic Calendar

Traders are awaiting immediate catalysts from the US economic calendar. The release of the US Producer Price Index (PPI) at 13:30 UTC stands as the main scheduled event capable of triggering volatility during Friday's session.

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