Sterling rose 0.40% after Andy Burnham said he would follow Chancellor Rachel Reeves’ fiscal rules and the Labour Party’s 2024 manifesto, while delaying any announcement of government appointments until the end of the election process. GBP/USD traded at 1.3244 after earlier touching 1.3191, and the move was also supported by a softer US Dollar: the DXY was down 0.20% at 101.15, aiding a rebound from around 1.3200.
Attention now turns to UK GDP for Q1 2026 and a US run of releases including ISM Manufacturing PMI and Nonfarm Payrolls on Thursday, with US markets shut on Friday for Independence Day. Fed Chair Kevin Warsh is due at the ECB Sintra Symposium, as traders watch for policy clues; money markets had priced 30 basis points of Fed tightening by end-2026, according to Prime Terminal. Technically, GBP/USD was cited at 1.3249, below the 50-, 100- and 200-day simple moving averages clustered near 1.3424; the broken trend line at 1.3529 remains overhead, while RSI (14) was 41.9 and support was flagged near 1.3159.
Challenges To Sterling’s Stability
With the new Prime Minister’s pledge to maintain fiscal discipline, we are seeing some temporary relief in the pound. This stability, however, appears fragile as the GBP/USD pair remains well below key technical resistance around the 1.3424 level. We view this current rally as a potential selling opportunity rather than the start of a new uptrend.
Upcoming UK GDP data for the first quarter of 2026 is a major risk event that could quickly erase these gains. Recent data from the Office for National Statistics has shown the economy growing by a modest 0.2%, and another weak print would reinforce the underlying bearish sentiment. Therefore, we believe buying near-term put options on the pound is a prudent way to hedge against a negative surprise.
Key US Data And Fed Outlook
This week’s focus will sharply shift to the United States, with Nonfarm Payrolls data due on Thursday ahead of the holiday. Consensus expectations are for around 210,000 jobs to have been added, and a strong number here could significantly boost the dollar. We anticipate implied volatility will increase heading into the data release, making options strategies that benefit from price swings attractive.
The commentary from the new Fed Chair, Kevin Warsh, also poses a significant threat to the pound’s recovery. Markets are currently only pricing in 30 basis points of rate hikes by the end of the year, which leaves substantial room for a hawkish surprise. Any suggestion of a more aggressive tightening path would likely send GBP/USD down to test support near 1.3159.
