GBP/USD slips to 1.3401 as US-EU trade deal lifts Dollar ahead of Fed meeting

• US-EU deal imposes 15% tariffs on EU goods, boosting Dollar and weighing on GBP.
• Markets eye July 31 Fed decision; Powell's tone could shape September cut expectations.
• BoE expected to cut rates August 7, with inflation sticky but economic momentum fading.

The GBP/USD drops 0.25% during the North American session after the United States (US) and the European Union (EU) reached a trade agreement before the August 1 deadline set by President Donald Trump. At the time of writing, the pair trades at 1.3401, near two-week lows.

Sterling drops 0.25% on risk flows and rising rate cut bets for both BoE and Fed, amid light data backdrop

The lack of economic data revealed during the European session, as well as in the US, left traders adrift to trade on news. The deal includes levies of 0% on some American goods, while EU goods imported to the US will pay 15% tariffs.

Despite this, investors' focus is on the Federal Reserve's (Fed) monetary policy decision on Wednesday; after that, Fed Chair Jerome Powell's press conference could set the tone for the rate's forward path, as traders have begun to price in a 63% chance of a cut in September.

The UK economic docket is absent, though traders are split between the Bank of England (BoE) holding rates unchanged, or a rate cut. Inflation in Britain remained sticky, although money market traders had priced in a 99% chance of a BoE cut at the August 7 meeting, followed by another one towards the end of the year.

Across the pond, the US economic docket would be packed, with the Fed, employment data, Gross Domestic Product (GDP) figures for the second quarter, and the ISM Manufacturing PMI.

GBP/USD Price Forecast: Technical outlook

From a technical perspective, the GBP/USD seems set to test lower prices after posting a 'shooting star' on Friday, paving the way for a pullback. Momentum turned south with the Relative Strength Index (RSI), despite remaining bullish, as it began to aim downwards. That said, a clear break of 1.3400 will expose key support levels.

The first one would be the 20-day Simple Moving Average (SMA) at 1.3342. Once surpassed, the next area of demand would be 1.3300, followed by successive 1.32, 1.31 figures, ahead of the 50-day SMA at 1.3000.

On the upside, the first key resistance would be 1.3450.