GBP/USD has reversed in favor of the British pound and started a fairly strong advance that could mark the beginning of a broader bullish trend. In my view, the recent appreciation of the U.S. dollar has not been fully justified by the fundamental backdrop over the past few weeks.

The geopolitical conflict in the Middle East has ended, yet it was precisely this factor that served as the primary driver of dollar strength in 2026. Consequently, it seems contradictory to see the dollar appreciate first because of the conflict and then continue strengthening after the conflict ended. The FOMC meeting and the Fed's hawkish stance may have initially supported the dollar, but the rally has persisted for longer than fundamentals would appear to justify.

The FOMC has not yet begun tightening monetary policy, and if inflation continues to slow, further tightening may not be necessary. Kevin Warsh's speech yesterday also failed to provide a clear answer as to whether the Federal Reserve intends to raise interest rates in July or September. The FOMC Chair reiterated the need to bring inflation lower but gave no indication of an imminent policy change.

Today's U.S. labor market data, however, were weak enough to encourage buyers to step in more aggressively. As a result, Bearish Imbalance 21 has now been fully mitigated, and the key question is whether the current bullish advance will continue. In both EUR/USD and GBP/USD, sellers have not completely surrendered control—they have merely retreated temporarily. An invalidation of Imbalance 21 would break the local bearish market structure.

From a technical perspective, the chart had allowed for a rise toward 1.3322, which is exactly what occurred today. The reaction to Bearish Imbalance 22 proved relatively weak. Before today's rally, price first swept liquidity below the April 6 low and then below the March 31 low. These liquidity sweeps suggested that the British pound had the potential to recover. Naturally, without today's weak Nonfarm Payrolls report, such a move might not have materialized.

Given that the U.S. dollar still lacks convincing long-term bullish drivers and has already posted impressive gains during 2026, I believe sellers may struggle to extend the current rally further. Nevertheless, technical analysis should remain the primary guide. If no bullish patterns or confirmation signals emerge, opening long positions would be premature. In that case, traders should wait to see how price reacts around Imbalance 21.

At present, the market remains cautious regarding the agreement between Iran and the United States. However, it can now be said that the active phase of the conflict has officially ended. Federal Reserve policy has supported a strong rally in the U.S. dollar, but it remains unclear what additional catalysts sellers could rely on to continue driving the dollar higher. Expectations of future FOMC tightening alone may not be sufficient.

The current technical picture is as follows. Last week, price reacted to Imbalance 22, but the response was weak, providing hope that the bearish impulse may be approaching its end. The liquidity sweeps below the two most recent lows (marked by the red lines) warn of a possible bullish advance. A complete invalidation of Imbalance 21 would effectively invalidate the sellers' strategy.

Thursday's macroeconomic backdrop clearly favored buyers. A single Nonfarm Payrolls report was enough to push the U.S. dollar down by approximately 100 points. Friday is expected to be relatively quiet, as the United States celebrates Independence Day. Consequently, trading activity may remain subdued, particularly during the second half of the day.

From a broader perspective, I continue to believe that the long-term outlook favors a weaker U.S. dollar. Neither the conflict between Iran and the United States nor the possibility of Federal Reserve rate hikes in 2026 has fundamentally changed that view. Geopolitical tensions temporarily reminded investors of the dollar's safe-haven status, but the conflict has ended—or is at least approaching its conclusion.

The Federal Reserve may raise interest rates during 2026, which is certainly supportive of the dollar. However, tighter monetary policy would also slow the U.S. economy. It is also worth remembering that Kevin Warsh was appointed FOMC Chair by President Donald Trump with the expectation that he would eventually pursue a more accommodative monetary policy aimed at stimulating economic growth—something Trump believed Jerome Powell failed to deliver.

For this reason, I do not expect any future Fed tightening to develop into a prolonged tightening cycle. In my opinion, any further appreciation of the U.S. dollar is likely to prove temporary rather than the beginning of a sustained long-term trend.

Economic Calendar for the United States and the United Kingdom:

• United Kingdom – Speech by Bank of England Governor Andrew Bailey (15:00 UTC)

The economic calendar for July 3 contains only one scheduled event. However, since Andrew Bailey has already spoken earlier this week, I do not expect today's speech to have a meaningful market impact. As a result, the macroeconomic backdrop is likely to have little or no influence on market sentiment on Friday.

GBP/USD Forecast and Trading Tips

The longer-term outlook for GBP/USD remains bullish, while the reaction to Bearish Imbalance 22 resulted in only a modest bearish correction. As a result, buyers have an opportunity to regain control of the market.

The British pound could still resume its decline toward the bullish trend invalidation level at 1.3007, but such a move would require fresh bearish confirmation signals. A new sell signal may only emerge within Imbalance 21.

Supporting the bullish case are the two recent liquidity sweeps. In addition, provided that price does not experience a sharp decline on Friday, a bullish imbalance is likely to form by the end of the session. If such a bullish pattern develops, buyers will have a much stronger technical foundation for extending the rally. The next upside targets would then be the highs of May 1 and January 27, located at 1.3656 and 1.3867, respectively.