– Written by


Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Recovers as UK Bond Markets Stabilise

The Pound US Dollar (GBP/USD) exchange rate strengthened on Monday, clawing back some of last week’s losses as UK political concerns began to ease and British bond markets stabilised.

At the time of writing, GBP/USD was trading at $1.3393, up around 0.5% on the day.

The Pound (GBP) climbed on Monday as investors appeared to take a calmer view of the UK’s political backdrop.

Pound Sterling had been knocked last week by mounting speculation over Prime Minister Keir Starmer’s position, with the uncertainty spilling into the bond market and sending UK borrowing costs sharply higher.

However, the mood improved at the start of the week as fears of an imminent leadership challenge began to recede.

Further reassurance came from Andy Burnham, seen as a potential challenger, after he suggested that he would maintain the government’s current fiscal rules if he became Prime Minister.

His comments helped cool concerns around the UK’s fiscal outlook, allowing gilt yields to pull back from their recent near-18-year highs and easing a key source of pressure on the Pound.

GBP also found some support from the IMF’s latest UK growth upgrade. The fund lifted its 2026 forecast from 0.8% to 1%, citing the economy’s ‘strong pre-war momentum’.

With political nerves easing and borrowing costs retreating, Sterling was able to regain some of the ground lost during last week’s volatility.

Meanwhile, the US Dollar (USD) weakened on Monday as investors locked in gains following the currency’s strong run last week, which had carried USD to multi-week highs.

The safe-haven ‘Greenback’ also struggled to attract much fresh demand amid an uneven market mood.

Ongoing attacks in the Middle East kept investors cautious, preventing a stronger risk-on rally. However, tentative optimism over a potential US-Iran peace deal helped curb demand for safer assets.

As a result, the US Dollar lost ground as traders trimmed positions after last week’s advance.

Near-Term GBP/USD Forecast: UK Labour Data to Lift the Pound?

Looking ahead, the Pound could be driven by the UK’s latest labour market figures on Tuesday.

Economists expect unemployment to have held at 4.9% in the three months to March, pointing to a broadly unchanged jobs market. Wage growth is also forecast to remain steady, while employment is expected to rise by 107,000.

If the figures print in line with expectations, signs of resilience in the UK labour market could reinforce the view that the Bank of England (BoE) may need to raise interest rates.

Later in the session, comments from BoE Deputy Governor Sarah Breeden may also influence GBP. A hawkish tone from Breeden could help the Pound extend its gains.

For the US Dollar, the latest ADP weekly employment change figure may attract attention as investors look for fresh signals on the strength of the US jobs market.

Meanwhile, risk sentiment could remain a key driver of the ‘Greenback’. Any further developments in the Middle East may trigger volatility, particularly if they shift demand for safe-haven currencies.

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The Euro (EUR) strengthened against Pound Sterling (GBP) after renewed speculation surrounding Prime Minister Keir Starmer’s future added to concerns over UK political stability and the outlook for the British currency.

Currency analysts at Rabobank said Pound Sterling remains heavily driven by headlines surrounding Starmer’s leadership battle, warning that prolonged political uncertainty could push EUR/GBP higher over the coming year.

GBP initially recovered some ground during early European trade, but Rabobank said the rebound quickly faded as investors reassessed mounting tensions inside the Labour Party.

“The currency clearly remains beholden to news regarding the future of PM Starmer’s leadership,” Rabobank said.

Markets briefly stabilised after Starmer survived another night without a formal leadership challenge, although pressure on the Prime Minister intensified sharply earlier this week.

Rabobank noted that more than 80 Labour MPs have reportedly called on Starmer to resign, while four ministers quit the government yesterday.

The bank said reports suggesting Health Secretary Wes Streeting could resign and launch a leadership challenge “as soon as tomorrow” were adding further uncertainty for investors.

While Labour Party rules make removing an incumbent leader difficult, Rabobank warned the scale of internal divisions points to the risk of “a prolonged period of messy UK politics”.

“This hints at the possibility of a prolonged period of messy UK politics – something that the Labour party had promised to put a stop to,” the bank said.

UK Gilt Market Concerns Returning

Rabobank said political instability is increasingly spilling into UK financial markets, particularly the gilt market.

Although long-dated UK bond yields briefly steadied this morning, the bank warned further volatility remains likely if uncertainty drags on.

“Any wobble in the long end would also leave the currency vulnerable,” Rabobank said.

Investors are also reassessing Bank of England rate expectations.

Through March and April, Sterling was supported by a sharp repricing in UK interest rates as markets swung from expecting cuts to pricing multiple hikes following the Iran-driven energy shock.

However, Rabobank believes current pricing has become too aggressive.

“Currently the market is priced for three 25bp rate hikes on a one-year view. That said, in Rabo’s view this is too aggressive,” the bank said.

Rabobank argued that softer labour market conditions and growing spare capacity in the UK economy should ultimately limit the need for aggressive Bank of England tightening.

“A re-pricing in favour of one rate hike could weigh on the pound,” analysts added.

EUR/GBP Forecast: Rabobank Targets 0.89 as Pound Sterling Risks Grow

Rabobank continues to forecast the Euro to Pound exchange rate moving towards 0.89 over a 12-month horizon, implying broader Sterling weakness ahead.

The bank warned the UK’s large current account deficit leaves the Pound particularly exposed if political uncertainty combines with renewed gilt market stress or weaker growth expectations later this year.

The US dollar has rallied a little bit against the Japanese Yen, but we are getting a little bit stretched here. What I would like to see is a little bit of a pullback in order to find value so that we can take advantage of any cheap dollars that we can find.

The 50-day EMA sits just above the 150-yen level, and it is an area that I think will continue to be important—a little bit of a floor, if you will. Above, we have the 160-yen level, an area that I think a lot of people will have to watch closely due to the fact that we had seen the Bank of Japan intervene in that general vicinity. That being said, this is a situation I think you’re looking to buy dips, taking advantage of the interest rate differential and any value you can find.

GBP/USD Technical Analysis

• The Euro fell on Friday as interest rates in the United States continued to climb.

• That being said, interest rates in Germany have climbed as well, but really at this point I think a lot of traders are starting to get very nervous about this situation in the Middle East where traders have to wait for the next headline to determine whether or not there is any progress being made in the idea of finding peace.

I don’t see a lot of progress and sooner or later you have to worry about inflation via energy. Europe is in a much more vulnerable position than the United States is due to self-imposed green regulations and a moratorium on drilling of a lot of its resources. So, with that being the case, a lack of natural gas and crude oil is a toxic situation for Europe.

Vulnerability and support levels

If we bounce from here, which happens to be the 200-day EMA, it offers a short-term opportunity for those who might be willing to fade the selling pressure, but quite frankly I would prefer to see a bounce and signs of exhaustion that I can start shorting again.

I do believe that the EUR/USD pair is going to stay in the range it’s been in for some time and, for what it’s worth, the Euro is basically at the same price it was when it was introduced in 1990. In other words, with all the noise that we’ve had over the last couple of decades, it really hasn’t gone anywhere; it is worth the same as it was back then.

If we break down below the 200-day EMA we could go down to the 1.14 level, which I see as a massive support level, but I also recognize that the 1.15 level probably offers support as well. Rallies look suspicious to me at this point in time.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire

The GBPJPY pair continued forming repeated negative trading, to confirm its surrender to the previously suggested bearish scenario by reaching 211.20, to form sideways fluctuating due to the contradiction of the main indicators to settle near 211.65.

Note that the stability below 213.50 barrier confirms the trading confinement within the bearish track in the upcoming trading, therefore, we will keep waiting for gathering extra negative momentum, to ease the mission of targeting 211.00 level, to attack 210.45 support, forming confirmation key for the upcoming trading.

The expected trading range for today is between 210.45 and 212.30

Trend forecast: Bearish