Sterling’s steady climb
The pound reached a one-week high against the US dollar on Monday, extending its rebound above several key long-term moving averages. These are now beginning to tilt upwards, adding weight to a more bullish outlook. Momentum signals are also improving. The 14-day RSI is rising, though it remains in neutral territory, which leaves scope for further gains without yet being overstretched.

Price action continues to look constructive, but a firm break above 1.36 dollars would be needed to open the way towards a retest of the 2025 high close to 1.38. Friday’s US non-farm payrolls release looms as the key catalyst, with the potential to drive volatility and force a directional breakout. Initial support lies at 1.3480, while resistance is clustered at 1.3600 and 1.3685.

Sterling’s technical backdrop against the euro is less convincing. The pair has failed to record a new weekly high for three weeks, and daily highs have been capped in four consecutive sessions. Resistance at 1.16 euros remains solid, preventing momentum from building.

There are, however, early hints of support emerging. The 21-day moving average has started to point higher, and a potential cross above the 50-day could mark the beginning of a more constructive phase. Even so, a series of overhead barriers from longer-term averages suggests that progress towards 1.18 will be hard-won. For now, the range between support at 1.1520 and resistance at 1.16 defines the landscape. A break beyond 1.1625 would be the first step toward a more positive bias.

Against both the dollar and the euro, relative rate spreads still favour the pound, with the Bank of England keeping a more hawkish line than most of its peers. This ought to provide support through the yield channel. Yet conviction remains thin, as the story rests on fragile foundations of sluggish growth and persistent inflation, which together cast doubt on the durability of bullish momentum.

Euro tests higher ground
EUR/USD began the week with strength, rising by about 0.4% in Asian trade before surrendering part of those gains later in the session. The move was largely driven by dollar weakness, after a federal appeals court ruled at the weekend that President Trump’s universal tariffs were unlawful. The decision, however, allowed the tariffs to remain in place for now, which calmed nerves and limited the impact. Markets remain more focused on the upcoming run of US data, especially Friday’s non-farm payrolls. Although economists anticipate a modest improvement, August is still likely to mark the fourth consecutive month with fewer than 100,000 jobs created, which could lend support to the euro.

In Europe, unemployment edged down to 6.2%, underlining the resilience of the bloc’s labour market despite global headwinds. This strength has encouraged a modest domestic recovery and may dissuade the European Central Bank from further easing this year. Trade negotiations now stand out as the main risk that could force an emergency move if talks were to break down without resolution.

Among ECB speakers on Monday, Isabel Schnabel struck a particularly notable tone, echoing elements of Jerome Powell’s Jackson Hole speech. She argued that structural forces such as labour shortages, climate change, and geopolitical fragmentation are likely to keep inflation risks elevated. In her view, the neutral rate is no longer as low as it was a decade ago, which implies monetary policy will need to stay tighter for longer.

The euro has managed to push above the upper boundary of August’s range between 1.16 and 1.17, but it quickly ran into resistance. A more decisive trigger will be required to sustain momentum, and this week’s series of US labour market reports, beginning with Wednesday’s JOLTS survey, could provide that spark.