An unusual bullish hammer reversal signal on the daily candlestick chart was confirmed by Friday's strong close and initially targets a test of 1.2820, 38.2% of the July-August fall.

Central bank expectations support sterling, as inflation remains resilient in the UK economy, though any significant signs of a recession would undermine the pound.
The Bank of England is making progress, with inflation expected to fall to around 7% in the July data and to around 5% in October.

BOEWATCH prices UK yields to peak at 5.733% from Friday's close of 5.25%, while FEDWATCH prices U.S. rates to peak at 5.404% in November from the current 5.25%-5.50% band as inflationary pressures ease.
U.S. CPI on August 10 will be key for Treasury yields and the USD; Reuters poll expects headline inflation at +0.2% monthly, 3.3% yearly, and core CPI at +0.2% monthly.

Technically, daily momentum studies show conflicting signals, while the 5-, 10- and 21-day moving averages edge lower, which is a net modest downside bias.

Thursday's rebound off 1.2627, 61.8% of the May-July rise, left a hammer reversal signal on the daily candlesticks.
Friday's close above Thursday's 1.2725 high confirmed the bullish signal.
An initial target is a test of 1.2820, 38.2% of the July-August drop, but hammer reversals often result in larger moves.

The New York range of 1.2689 to 1.2791 is the current initial support and resistance for the USD/GBP.

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