GBP/USD extended its mild rebound into a second session on Friday, trading just above 1.3200 in early European dealings. The US Dollar stayed soft after failing to hold Thursday’s push to its highest level since May 2025, providing support to the pair, but the move lacked follow-through.
UK political uncertainty restrained demand for sterling and kept gains capped, while the broader chart picture remained wary. The pair’s repeated inability to clear the 200-period SMA on the four-hour chart, combined with this week’s break below 1.3300, reinforced bearish pressure after Wednesday’s trough at 1.3140, the lowest since November. Momentum indicators were mixed: RSI sat at 47, and MACD showed its line marginally above the signal line near zero. Resistance was cited at the 200-period SMA at 1.3384, while the mid-1.3100s were monitored as an interim floor.
Near-Term GBP/USD Outlook Remains Bearish
We see the GBP/USD pair holding above 1.3200, but this strength feels temporary and is mostly due to a slight pullback in the US dollar. The dominant trend for the past two months has been clearly bearish, and we don’t see enough conviction to fight it. We expect this consolidation to be short-lived, especially given the stronger US economic data.
We are holding back from any aggressive bullish bets on the pound because of the UK’s political instability ahead of a potential autumn election. The latest UK GDP figures, which showed stagnant 0.1% growth in the first quarter of 2026, further discourage taking any long positions on sterling. This uncertainty is a major headwind for the currency.
Meanwhile, the US dollar’s fundamental strength remains intact, creating a ceiling for any rallies. The recent Non-Farm Payrolls report for May 2026 showed a solid addition of 210,000 jobs, reinforcing the Federal Reserve’s stance to hold interest rates steady. This policy difference with a potentially hesitant Bank of England continues to favour the dollar.
Trading Strategy: Favoring Short Positions Amid Risks
Given the recent failure to break above the key resistance around 1.3384, we view any rallies as an opportunity to build short positions. We are looking at buying put options with strike prices below the 1.3100 level to position for a potential new leg down. This strategy provides a clear, risk-defined way to profit if the primary downtrend resumes.
While some indicators hint at weak upward momentum, we believe the upside is firmly capped. Selling out-of-the-money call options with strike prices near 1.3400 could be a viable strategy to collect premium. This approach benefits from our view that political and economic headwinds will prevent any significant, sustained rally in the coming weeks.
