GBPUSD Forecast: U.K. Yield Stress Keeps Sterling Under Pressure

GBPUSD also relies on rate expectations, but the U.K. has an issue with the rate outlook. The 30-year gilt yield has jumped to 5.85% that shows strong pressure in the long end of the bond market.

When yields are higher, they can support strong growth or higher return. But they can hurt the currency when they face fiscal risk. In the U.K., investors may be concerned that rising debt burden will put pressure on government finances and slow growth.

This makes sterling vulnerable. If inflation is likely to stay high, there is limited scope for the Bank of England to reduce interest rates further. However, it is not possible to overlook the economic effects of high interest rates. The equilibrium can create uncertainty for GBPUSD.

The outlook is mixed and uncertain. GBPUSD could benefit from the Bank of England’s cautious move on inflation. But a positive U.S. yield and U.K. fiscal issues could limit the gains. However, a better bullish environment would have to form lower U.S. yields, steady gilts and better U.K. growth data.

The chart below shows that the GPPUSD trades within the 1.30 and 1.3780. A break of this range is required to take the pair in any direction.

GBP/USD’s recovery was capped at 1.3462 last week. Initial bias remains neutral this week first. On the downside, below 1.3300 will target a retest on 1.3158 support first. However, firm break of 1.3462 will bring stronger rebound back to 1.3657 resistance instead.

In the bigger picture, current development suggests that price actions from 1.3867 are merely a corrective pattern within the broader up trend from 1.0351 (2022 low). With 1.3008 support intact, medium term bullishness is maintained and break of 1.3867 is in favor for a later stage, towards 1.4248 key resistance (2021 high). However, firm break of 1.3008 will at least bring deeper fall to 38.2% retracement of 1.0351 to 1.3867 at 1.2524, with increased risk of bearish reversal.

In the long term picture, as long as 1.4248/4480 resistance zone holds (38.2% retracement of 2.1161 to 1.0351 at 1.4480), the long term outlook will remain bearish. That is, price actions from 1.0351 are seen as a corrective pattern to down trend from 2.1161 (2007 high) only. Nevertheless, decisive break of 1.4248/4480 will be a strong sign of long term bullish reversal.

• The British pound continues to be very noisy against the US dollar as we see the volatility and choppiness continue to cause chaos.

• The 10-year yield in the United States did drop a little bit during the trading session, but it seems like we have found the 200-day EMA supported.

All things being equal, the GBP/USD market is basically stuck between the 200-day EMA underneath and the 50-day EMA above. With that being the case, I think it does make sense that we squeeze here a bit and, unfortunately for most traders, it’ll come down to what happens on the session on Friday with the bond markets. Bond markets, I think, will continue to reflect how they react to the latest headlines coming out of the Middle East or the global situation in general.

Risk Appetite and Macroeconomic Crosscurrents

Keep in mind that there are a lot of concerns when it comes to whether or not there will be peace in the Middle East and that obviously has a major influence. I believe at this juncture that we are more likely than not to look at a market condition that will remain very agitated and therefore choppy.

The interest rates in Great Britain actually are higher than they are in the United States, but the differential is somewhat negligible. Because of this, I think this comes down to risk appetite more than anything else. The rates in the United States dropping is a good sign for the pound and, quite frankly, it’s a good sign for a lot of different currencies. Whether or not that remains the case, we’ll have to wait and see.

Keep in mind though, the United Kingdom has a lot of energy concerns that, quite frankly, the United States doesn’t have, so that could come into play longer term. To the upside, I think the buyers are targeting 1.35. To the downside, 1.3350 is support. Look for an impulsive candle that should give you a heads up as to where we’re going.

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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 US Dollar to Yen (USD/JPY) exchange rate has remained close to 159.0 after recovering from intervention-driven declines earlier this month.

Although the pair remains elevated in the near term, Deutsche Bank expects a gradual move lower over the medium term and forecasts USD/JPY at 150 by the end of 2026.

The bank believes that current levels continue to reflect exceptionally wide US-Japan yield differentials, which have supported sustained Yen weakness.

Over time, however, Deutsche Bank expects those yield gaps to narrow as US monetary policy gradually normalises and Japanese inflation remains firmer than in previous years.

The bank also considers that Japanese authorities remain uncomfortable with excessive Yen weakness and are likely to remain active if speculative selling intensifies.

While further gains towards 160 cannot be ruled out in the short term, Deutsche Bank expects the broader trend to favour a stronger Yen over the next 12-18 months.

EUR/JPY was bounded in range below 185.44 last week and outlook is unchanged. Initial bias remains neutral this week first. Fall from 187.93 should have completed at 182.01. Above 185.44 will extend the rebound from there to retest 187.93. However, firm break of 184.02 support will bring deeper decline back to 182.01.

In the bigger picture, the pullback from 187.93 is steep, there is no sign of reversal yet. Uptrend from 114.42 (2020 low) is still expected to resume at a later stage to 78.6% projection of 124.37 (2022 low) to 175.41 (2025 high) from 154.77 at 194.88. However, sustained break of 55 W EMA (now at 178.27) will argue that it’s already in a medium term down trend to 175.41 resistance turned support and below.

In the long term picture, up trend from 94.11 (2021 low) is in progress. Next target is 138.2% projection of 94.11 to 149.76 (2014 high) from 114.42 (2020 low) at 191.32. This will remain the favored case as long 55 W EMA (now at 178.27) holds.

The EUR/USD pair fell for a second consecutive week, settling not far above a fresh multi-week low of 1.1576. War-related headlines kept driving financial markets, coupled with mounting speculation that the United States (US) Federal Reserve (Fed) will deliver a rate hike before the year is over.

Optimism about a possible resolution of the US-Iran conflict fluctuated throughout the week, reaching its peak on Thursday when headlines suggested both countries reached an agreement via Pakistan mediation, putting temporary pressure on the safe-haven US Dollar (USD).

Early on Friday, however, reports clarified that there is no actual deal, although there’s progress toward peace. Iran’s uranium enrichment and control over the Strait of Hormuz are the remaining sticking points, the same issues that have been dragging on ever since the first idea of an agreement.

Easing Oil prices suggest investors are optimistic about a deal, although taking it with a pinch of salt. By the end of the week, the positive tone of equities also supports the idea of a better mood heading into the weekend.

Still, the Greenback remains strong as focus is also on the Fed. Kevin Warsh was sworn in as the 17th Fed Chair on Friday, facing quite a tumultuous scenario. Warsh will have to deal on the one hand with increasing inflationary pressures and tepid growth and on the other hand, with a President that demands lower interest rates, the opposite of what markets are betting on. Warsh will preside over his first Federal Open Market Committee (FOMC) monetary policy meeting in mid June.

European Central Bank rate hike coming

Across the pond, the situation does not differ much. The Old Continent faces the same inflationary pressures steaming from the Iran war, with recent data showing that the euro area annual inflation rate was 3.0% in April 2026,  after printing at 2.6% in March. The European Union (EU) annual inflation was 3.2% in April 2026, up from 2.8% in the previous month.

The European Central Bank (ECB) is widely expected to deliver a rate hike in June, after keeping rates unchanged in April, albeit policymakers are working to temper expectations of more rate hikes coming in July. The ECB is scheduled to announce its next monetary policy decision on June 11.

The Euro (EUR) enjoyed some temporary demand after the initial headlines indicating that a rate hike in June is pretty much a done deal, but it was not enough to overshadow broad USD strength.

Worrisome data

The macroeconomic calendar had little to offer, but the released figures fueled growth-related concerns. S&P Global released the preliminary estimates of the May Purchasing Managers’ Indexes (PMIs). European figures were the most worrisome, as the German Composite PMI came in at 48.6, while for the EU, the index printed at 47.5, both indicating contraction. In the US, however, the Composite PMI was confirmed at 51.7, matching the April print.

In the upcoming days, the US will release the April Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, which was previously at 3.5% YoY. The country will also publish an update on the Q1 Gross Domestic Product (GDP), while Germany will publish the preliminary estimate of the May Harmonized Index of Consumer Prices (HICP).

Market players are excited, yet cautious about a peace deal in the Middle East, but have learned that weekends do not equal absent news on the matter. Be aware of whatever happens, triggering some opening gaps on Monday’s Asian open.

EUR/USD Technical Outlook:

EUR/USD is technically bearish according to the daily chart. The pair holds beneath both the 20-day simple moving average (SMA) at 1.1692 and the 100-day SMA at 1.1699, with the shorter one crossing below the longer one, an early sign of further slides ahead. The 200-day SMA, in the meantime, holds flat around 1.1660. At the same time, technical indicators hold within negative levels with neutral-to-bearish slopes, not enough to confirm further slides but supporting the downward case.

In the weekly chart, EUR/USD holds well above the 100- and 200-week simple moving averages (SMAs) at 1.1256 and 1.0959, but extended its slide below the 20-week SMA at 1.1689, in line with mounting selling pressure. The Relative Strength Index (RSI) indicator gains downward traction just under the 50 mark, while the Momentum indicator also aims south in negative territory, hinting that sellers are gaining ground.

On the topside, initial resistance could be found at 1.1660, the weekly top, followed by the 1.1690 region, where multiple SMAs converge. The area is likely to hold in a risk-averse scenario and without a clear war deal. If somehow the US and Iran reach an agreement and reopen the Strait of Hormuz, next in line are 1.1740 and 1.1800. On the downside, the broader trend backdrop is underpinned by the weekly low, with additional losses exposing a long-term static support area at 1.1470. A clear break below the latter could open the door for a steeper decline towards the 100-week SMA at 1.1256.

(The technical analysis of this story was written with the help of an AI tool.)

The EURGBP provided a new negative close below the minor bearish channel’s resistance at 0.8685, forming several bearish waves, to settle near 0.8645 level, confirming the dominance of the previously suggested bearish trend.

By the above image, we notice the stability of moving average 55 near the main resistance, besides stochastic attempt to reach the oversold level will increase the negative pressure on the current period trading, which makes us prefer targeting new negative stations that might begin at 0.8610 and 0.8585.

The expected trading range for today is between 0.8610 and 0.8640

Trend forecast: Bearish

The Australian dollar has fallen as well, reaching toward the 50-day EMA, getting fairly close to an area where there seems to be a certain amount of demand for the Aussie dollar, so I would watch that.

The 50-day EMA has been somewhat reliable over the last week. We’ll see if that remains the case, because if so, it could be a short-term buying opportunity. I don’t have any interest in shorting the Aussie. It’s not even that I don’t like the US dollar, it’s just that the Reserve Bank of Australia has recently raised rates, and that’s something most banks aren’t doing.

USD/JPY edged higher to 159.33 but quickly retreated. Intraday bias remains neutral first. Above 159.24 will target 160.71 high. Strong resistance is expected from there to start the third leg of the near term corrective pattern. On the downside, break of 157.30 support will turn bias to the downside for retesting 155.01.

In the bigger picture, for now, corrective pattern from 161.94 (2024 high) is still seen as completed at 139.87. Rise from there is seen as resuming the long term up trend. So, break of 161.94 is expected at a later stage to resume the long term up trend. However, sustained break of 55 W EMA (now at 154.36) will dampen this view and bring deeper fall back towards 139.87 to extend the pattern from 161.94.