Rabobank expects renewed pressure on Pound exchange rates as concerns over Prime Minister Andy Burnham’s spending plans unsettle the gilt market.

The British Pound concluded this trading week facing a difficult combination of political uncertainty, elevated UK bond yields and doubts over how the new government intends to fund its policy agenda.

UK economists at Rabobank say the initial market response to Burnham’s cabinet and early policy announcements has been notably cautious.

The UK 10-year gilt yield has moved above 5.0%, while Pound Sterling has ranked as the weakest G10 currency over the latest one-day period.

Although the appointment of an experienced Chancellor has offered some reassurance, the bank warns that uncertainty surrounding the government’s fiscal strategy could keep both gilts and the Pound under pressure.

Rabobank analysts expect EUR/GBP to rise to 0.8650 over the next three months and sees scope for GBP/USD to fall back towards 1.3200.

At current rates, those forecasts imply a weaker Pound against both the Euro and the US Dollar.

Rabobank Warns Burnham’s Honeymoon Could Be Brief

Rabobank says the appointment of Healey as Chancellor is a stabilising factor because the country’s finances have been placed in the hands of an experienced politician with previous Treasury exposure and respect across Parliament.

However, the larger question is how Burnham plans to finance his agenda.

The Prime Minister has said he intends to use “flexibility” within the fiscal rules, which Rabobank says could point towards placing some infrastructure-related debt on the balance sheets of public financial institutions.

Although such borrowing might sit outside the most closely watched fiscal measures, it would still need to be absorbed by the bond market.

“The market will be wary about whether this constitutes ‘back door’ funding,” Rabobank says.

The government’s first cost-of-living measure is a reduction in VAT on household electricity bills from October.

Officials have indicated that the measure will be funded by cancelling the previous government’s digital identity programme, although reports have raised doubts over whether that scheme was fully funded in the first place.

Rabobank notes that use of greater flexibility within the fiscal rules could potentially mobilise an additional £16 billion for infrastructure projects over the remainder of the decade.

Infrastructure investment could improve productivity in parts of the UK outside London and the South East, but those benefits may take years to materialise.

Burnam, by contrast, faces a general election in less than three years.

That leaves the government under pressure to deliver visible improvements quickly, increasing the risk that spending commitments expand before the economic benefits become apparent.

“The market is now bracing itself for a list of further announcements,” Rabobank says.

“This suggests that funding issues will remain at the fore of the market’s mind and hints that Burnham’s honeymoon may be short-lived.”

Gilt Market Particularly Sensitive

The latest UK borrowing figures were slightly better than expected for June, but borrowing over the first three months of the fiscal year remains above projections from the Office for Budget Responsibility.

At an early stage of the financial year, that overshoot might ordinarily attract limited attention.

Rabobank argues that the political backdrop makes investors more sensitive than usual.

Burnham is associated with the softer left of the Labour Party and has said he wants government to become less reliant on what he described as the “imperial” Treasury.

Against this backdrop, the bond market is likely to demand clear reassurance that new spending plans will remain compatible with the fiscal rules.

Rabobank also highlights structural vulnerabilities in the UK economy.

The country has a low household savings ratio and a substantial current-account deficit, increasing its dependence on overseas capital.

These characteristics can amplify market reactions when confidence deteriorates.

“The UK may not have the largest debt-to-GDP ratio in the developed world, but arguably it has one of the most sensitive debt markets,” Rabobank says.

Lower BoE Expectations Are Another Pound Risk

The reduction in VAT on household electricity bills should mechanically lower inflation.

Rabobank also expects headline UK CPI inflation to ease to 2.7% year on year, offering some short-term reassurance to the gilt market.

The inflation outlook remains complicated by higher spot energy prices following the escalation in the US-Iran conflict, but Rabobank believes current Bank of England pricing is too aggressive.

Markets are pricing approximately 43 basis points of BoE tightening over the next six months.

Rabobank expects the central bank to avoid raising rates this year.

“On our view, this is overdone and a reduction in market expectations for BoE policy tightening is another headwind for the pound,” the bank says.

This is important because elevated UK interest-rate expectations have provided Sterling with some protection against fiscal and political concerns.

Were investors to remove those expected rate increases, the Pound would lose part of its yield advantage at the same time as the gilt market remains uneasy about government borrowing.

GBP/USD Forecast: 1.3200 Comes Back Into View

GBP/USD ended the latest session around 1.3325, recording a modest daily gain after Thursday’s 0.47% decline.

The pair has nevertheless fallen by more than two cents from the 15 July close near 1.3540 and remains well below July’s high of 1.3558.

The short-term chart shows Sterling attempting to stabilise around 1.3320 after repeated failures to sustain advances above 1.3340.

GBP/USD is trading close to the 20-period moving average at 1.3327 and session VWAP near 1.3323.

That positioning suggests the pair is currently balanced around its immediate fair-value area rather than developing a strong recovery.

The 200-period moving average near 1.3340 remains the more important overhead barrier.

A recent rebound failed close to that level, confirming the 1.3340-1.3350 region as the first substantial resistance zone.

RSI has recovered to approximately 48 from below 40, showing that downside momentum has eased.

However, the indicator remains below 50 and does not yet signal that buyers have regained control.

Initial support is located around 1.3310, followed by 1.3290.

Rabobank’s 1.3200 objective would come into clearer view following a break below these levels, while July’s low at 1.3221 represents a significant intermediate support area.

On the upside, a sustained move above 1.3340 would reduce immediate downside pressure, although GBP/USD would still need to recover through 1.3400 to suggest the broader July correction has ended.

The median bank forecast path also points to near-term weakness before a later recovery.

The Q3 2026 median projection is close to 1.3200, broadly matching Rabobank’s three-month forecast, while the consensus path then rises towards 1.35 in early 2027 and approximately 1.38 by the end of that year.

Rabobank’s view is therefore consistent with the wider consensus in anticipating near-term pressure, although it does not rule out a longer-term recovery.

EUR/GBP Forecast: Rabobank Targets 0.8650

EUR/GBP closed around 0.8534 after falling 0.14% in the latest session.

The cross has recovered from July’s low near 0.8455, but remains almost 1% lower for the month and below the July opening level near 0.8614.

The 15-minute chart shows that EUR/GBP has surrendered part of its recent rebound after failing above 0.8550.

The cross is trading close to its 20-period moving average near 0.8533, but remains below session VWAP around 0.8541 and beneath the 200-period moving average near 0.8539.

This leaves the immediate technical picture mixed.

The latest recovery from below 0.8530 shows that selling pressure has moderated, while RSI near 46 has moved above its signal line.

However, the cross remains below the neutral 50 level and has yet to overcome the main intraday resistance cluster.

Initial resistance is located around 0.8539-0.8542, followed by 0.8547 and the recent highs around 0.8550-0.8555.

A break through that area would strengthen the case for a return towards 0.8600.

Rabobank’s 0.8650 forecast lies above the current technical range and would require a more decisive deterioration in Sterling sentiment.

On the downside, support is located around 0.8530, followed by 0.8525.

A break below these levels would weaken the immediate recovery and raise the risk of a renewed move towards 0.8500.

The wider bank consensus also leans towards a higher EUR/GBP rate over the coming quarters.

The median forecast stands close to 0.8700 from the third quarter of 2026 through early 2028, before easing towards 0.8600 and then 0.8450 by the end of 2028.

Rabobank’s 0.8650 target is therefore slightly below the near-term consensus median but still implies a meaningful Sterling decline from current levels.

Pound Sterling: Rabobank’s forecasts leave GBP exposed on two fronts

Against the Euro, the bank expects EUR/GBP to rise towards 0.8650 as investors question the government’s fiscal plans and reassess the likelihood of Bank of England tightening.

Against the Dollar, it sees GBP/USD falling towards 1.3200 as political uncertainty, gilt-market sensitivity and lower UK rate expectations weigh on the Pound.

The technical charts show that neither move has yet been fully confirmed.

GBP/USD is attempting to stabilise around 1.3320, while EUR/GBP remains below resistance around 0.8550.

However, the fundamental risks identified by Rabobank remain unresolved.

A reduction in expected BoE tightening would remove an important source of Sterling support, while further spending announcements without a convincing funding plan could renew pressure on gilts.

The base case is therefore for Pound Sterling to remain vulnerable, with a GBP/USD break below 1.3290 strengthening the path towards 1.3200 and an EUR/GBP move above 0.8550 opening the way towards Rabobank’s 0.8650 target.

The US Dollar to Yen exchange rate is trading around 163.85 after reaching a July high near 163.98, its strongest level since 1986. The pair is up around 0.75% this month and has risen from roughly 147 in August 2025.

Scotiabank says the Yen is showing tentative signs of stabilisation, although it continues to underperform most other G10 currencies.

The latest pause has been driven more by softness in the broader US Dollar than by Japanese official commentary.

Finance Minister Katayama has continued to warn of “bold action” to counter excessive currency moves, but Scotiabank notes that intervention threats have produced little meaningful reaction in the Yen.

Attention now turns to the Bank of Japan’s July 31 meeting. Markets are pricing almost no chance of an immediate rate move and only around 10 basis points of tightening by September.

Scotiabank believes this leaves scope for a hawkish surprise if policymakers signal that the tightening cycle could proceed faster than investors currently expect.

According to the bank, “a hawkish hold next week could deliver an important surprise and deliver fundamentally-driven yen strength.”

Until then, Scotiabank sees little meaningful technical resistance for USD/JPY as the pair continues to trade at fresh multi-decade highs.

Our currency coverage draws on live market data, official economic releases and published bank research.

ING’s forecast for EUR/USD to retreat towards 1.1380 has already been realised, with the pair now testing its lowest levels of July as higher energy prices support the US Dollar.

The Euro-to-Dollar exchange rate traded close to 1.1371 late on Friday, extending its retreat from the mid-July peak near 1.1470.

EUR/USD fell 0.30% on Thursday and has now declined in seven of the past eight completed sessions.

The pair is also down by around 0.3% for July, having traded between 1.1362 and 1.1481 during the month.

ING had expected EUR/USD to drift back towards 1.1380 as elevated energy prices continued to favour the Dollar.

That objective has now been reached and modestly exceeded, leaving the market focused on whether support around 1.1360 can prevent a deeper Euro decline.

ING Sees US Dollar Support from Higher Energy Prices

ING describes a global investment environment in which equity-market sentiment remains relatively resilient even as higher energy prices push interest rates upwards.

According to the bank, investors are favouring currencies that provide both attractive yields and some protection against a further escalation in energy costs.

“The dollar and the Norwegian krone remain the go-to currencies here,” says Chris Turner, ING’s Global Head of Markets and Regional Head of Research for the UK and Central and Eastern Europe.

The Dollar’s yield advantage and the relative resilience of the US economy leave it better positioned than lower-yielding currencies during a period of elevated oil and gas prices.

ING expects the Dollar Index to remain supported within its 100.35-101.80 range and continues to favour the upside over the short term.

Higher energy prices are particularly relevant for EUR/USD because the Eurozone is a major net energy importer.

An extended increase in oil and natural gas costs can weaken the region’s terms of trade, squeeze household spending and raise costs for European businesses, while simultaneously supporting the Dollar through higher US yields and safe-haven demand.

EUR/USD Reaches ING’s 1.1380 Target

Analysts at ING noted that EUR/USD had initially held up relatively well despite the rebound in energy prices and a rise in European natural gas towards €60 per megawatt hour.

Interest-rate expectations helped explain that resilience.

Higher energy costs encouraged investors to price a more aggressive tightening response from the European Central Bank than from the Federal Reserve, temporarily supporting Eurozone yields and the single currency.

However, ING questioned how much further ECB expectations could move in a hawkish direction.

“It is hard to see the market pricing in even higher ECB rates, regardless of the language delivered at tomorrow’s ECB meeting and press conference,” says Turner.

“Barring a near-term move towards another cease-fire between the US and Iran, our bias remains for EUR/USD to drift back to 1.1380.”

That forecast has proved accurate, with EUR/USD falling through 1.1380 and approaching July’s low around 1.1362.

The question now is whether the retreat represents the completion of the corrective move or the beginning of a more sustained decline.

EUR/USD Technical Outlook Remains Fragile

The short-term chart continues to favour the US Dollar, although the Euro is attempting to stabilise near the bottom of its recent range.

EUR/USD trades below its 20-period moving average near 1.1372 and beneath session VWAP around 1.1381.

The pair is also well below the 200-period moving average near 1.1392, confirming that the immediate intraday trend remains bearish.

Repeated failures between 1.1390 and 1.1400 have established this region as significant resistance. The Euro would need to recover above this area to suggest that the sequence of lower short-term highs has been broken.

RSI has recovered to approximately 44 after previously approaching oversold territory.

The indicator remains below the neutral 50 level, showing that bearish momentum is still present, but the recovery from its lows suggests selling pressure is no longer accelerating.

This is consistent with a market consolidating after a decline rather than one already embarking on a convincing rebound.

Initial resistance is located around 1.1374, followed by ING’s former target at 1.1380.

A recovery above 1.1380 would allow EUR/USD to challenge 1.1387 and the 200-period moving average close to 1.1392.

The 1.1400 area then represents the more important technical barrier. A sustained break above it would weaken the immediate bearish case and suggest the pair is returning to a broader range.

On the downside, July’s low at 1.1362 is the key near-term support.

A decisive break beneath that level would confirm that the decline has extended beyond ING’s original objective and expose the lower portion of June’s range.

Energy Market Remains the Key Risk

ING’s EUR/USD assessment was conditional on the geopolitical and energy-market backdrop.

A ceasefire or meaningful de-escalation between the US and Iran would reduce the energy-price premium supporting the Dollar and could allow the Euro to recover.

The opposite scenario presents the larger downside risk.

A renewed rise in oil or European gas prices would probably reinforce demand for the Dollar while increasing concerns over the Eurozone growth outlook.

The policy implications are also complicated.

Higher energy prices can raise headline inflation and encourage expectations of tighter ECB policy, but they simultaneously weaken real incomes and economic activity.

ING’s argument is that the market has limited capacity to price substantially more ECB tightening, reducing the potential support available to the Euro from interest-rate expectations.

The Federal Reserve, meanwhile, benefits from a stronger US growth backdrop and a currency that tends to attract demand when geopolitical uncertainty increases.

EUR/USD Technical Forecast

ING’s move towards 1.1380 has been completed, but the short-term technical picture does not yet provide a convincing signal that the decline is over.

EUR/USD remains below its main intraday moving averages and continues to trade near the bottom of July’s range.

The 1.1362 monthly low is now the immediate dividing line.

Holding above this level could produce a corrective recovery towards 1.1380 and potentially 1.1390, particularly if energy prices ease or geopolitical tensions subside.

A break below 1.1362 would instead strengthen the Dollar’s advantage and leave EUR/USD vulnerable to a deeper extension lower.

The base case is therefore for the Euro to remain under pressure while below 1.1390-1.1400, with energy prices and developments in the Gulf determining whether the pair stabilises or resumes its decline.

Copper price failed in breaching the barrier at $6.5100, forcing it to delay the bullish trend and providing a clear negative rebound, to settle near $6.2500, the current decline will not affect the chances of renewing the bullish trend, depending on the stability of the extra support at $6.1000, to wait for gathering positive momentum and begin forming bullish waves, to repeat the pressure on the mentioned barrier.

While the decline below the additional support and providing negative close will increase the strength of the bearish corrective track, to expect suffering several losses by reaching $5.9200 and $5.8100.

The expected trading range for today is between $6.1500 and $6.5000

Trend forecast: Fluctuated within the bullish trend

The pair’s price remains affected by conflicting signals from the main indicators, forcing it to trade sideways with repeated fluctuations below the 218.60 level, which currently represents a temporary barrier against further bullish momentum. As a result, the price has entered a new sideways range, settling near the 218.00 level.

We reiterate that the bullish scenario remains valid as long as the support level at 216.75 holds. Furthermore, the continued formation of 217.50 as additional support leads us to expect the price to gather positive momentum, enabling it to break above the barrier and then reach the next bullish targets, which may begin at 219.40 and 220.00.

The expected trading range for today is between 217.85 and 219.40

Trend forecast: Bullish

– Written by


James Fuller

STORY LINK Pound-to-Dollar Outlook: Risk Aversion and Oil Prices Weigh on GBP

The Pound US Dollar (GBP/USD) exchange rate fell on Thursday as the escalating US-Iran conflict soured the market mood.

At the time of writing, GBP/USD was trading at $1.3318, down 0.4% on the day.

The US Dollar (USD) strengthened on Thursday as rising tensions in the Middle East prompted investors to favour safe-haven assets.

Although markets had initially remained relatively resilient despite the escalating conflict, risk appetite weakened as the situation deteriorated, lifting demand for the ‘Greenback’.

As the US launched its 12th consecutive night of strikes on Iran, global oil prices reached $100 per barrel. Meanwhile, Yemen’s Houthi militia declared a blockade on Saudi Arabian ports, attacking Saudi oil tankers in the Red Sea and risking widening the conflict.

The Pound (GBP) faced modest pressure on Thursday as investors continued to reflect on Andy Burnham’s first week as Prime Minister.

Sterling had climbed in the run-up to Burnham entering Downing Street, with markets removing the political risk premium that had previously weighed on the currency.

However, the Pound has slipped back this week as uncertainty remains over how the government’s planned tax cuts and increased spending commitments will be funded.

Near-Term GBP/USD Forecast: PMI Data to Drive End-of-Week Trade

Looking ahead, the UK’s June retail sales figures will be released at the start of Friday’s session. Forecasts point to a 0.3% decline in sales, which may leave the Pound on the defensive.

Focus will then shift to the UK’s latest PMI surveys, with the services reading expected to be the key release for Sterling. Evidence of improving business activity in July could provide the currency with fresh support.

Later in the day, attention will turn to the latest S&P Global PMIs from the US. While these surveys typically carry less weight than the ISM figures, an improvement in July’s activity could reinforce demand for the ‘Greenback’.

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The Japanese yen remained under intense pressure today, July 23, as traders rushed to the US dollar amid the rising tensions in the Middle East. The USD/JPY pair was trading at 163.07, a few pips below this week’s high of 163.2. 

The Japanese yen has continued falling this month, even as the country’s central bank has launched several defensive measures. 

The Bank of Japan has hiked interest rates to the highest level since 1995, and hinted that it may deliver more increases. 

At the same time, the bank has spent more than $73 billion on foreign exchange market interventions. While these interventions typically trigger a stronger yen, the gains have historically been short-lived.

The Japanese yen has mostly dropped because of the significant gap that exists between the US and Japanese interest rates.

Japanese rates have jumped to 1%, while in the United States, the Fed has left them unchanged between 3.50% and 3.75%.

Economists and traders now expect the Fed to hike rates further this year as inflation concerns remain. Odds of a Fed hike have jumped to over 67% on Polymarket.

Higher interest rates in the United States have made the US dollar more attractive than the Japanese yen.

They have also fueled the popularity of the USD/JPY pair among carry traders, who borrow in low-interest-rate currencies to invest in higher-yielding ones.

The ongoing crisis in the Middle East has contributed to the ongoing Japanese yen sell-off because the country depends substantially on oil coming from the region. In a statement, an Iranian official said that the crisis would escalate. He said:

“If the Americans target a bridge or a power plant in Iran, Iran will, in turn, strike infrastructure and bridges in the region, including energy facilities where the United States has interests.”

Data shows that Brent and the West Texas Intermediate (WTI) continued rising overnight as the crisis continued.

Also, Houthis hit an oil tanker attempting to cross the Bab El-Mandab Strait. Brent jumped to $96, while the West Texas Intermediate (WTI) approached the key resistance at $90. These events have fueled the US dollar gains as investors rush to its safety.

USD/JPY chart | Source: TradingView

The daily chart shows that the USD/JPY pair has continued rising in the past few months. These gains have been supported by the 50-day Exponential Moving Average (EMA). 

The pair has recently crossed the important resistance level of 162.82, its highest level on July 1. It also remains above the Supertrend indicator. 

Therefore, the path of the least resistance for the pair is bullish, with the next key level to watch being at 164. A move above that price may see it hit the resistance at 165 over time.

On Thursday, we saw a lot of support for the British pound against the Japanese yen, as it continues to slide overall in the forex markets.

GBP/JPY

During trading on Thursday, we’ve seen some noisy behavior in the British Pound against the Japanese Yen as we are hanging around the 218 Yen level. This is an area that’s been important multiple times, and it is worth watching right now. Ultimately, short-term pullbacks, I think, are buying opportunities in a market that, quite frankly, continues to see a lot of volatility.

The volatility in this market is one that I think will remain a major factor due to the fact that we have so many moving pieces out there that could have markets all over the place. After all, we have the war in the Middle East continuing to cause havoc with risk appetite, and of course, we have rates jumping not only in Great Britain, but also in the United States and everywhere else.

The Bank of Japan is essentially stuck. The US Dollar has broken to a fresh new high against the Yen, and that will drag the Pound with it given enough time. The 216 Yen level looks to be support. The 50-day EMA is approaching there as well.

Carry Trade Advantage and Intervention Dip Strategies

So, I think this is a market where you continue to buy dips on, and you continue to collect the swap at the end of every day. I have been short of the Japanese Yen against a couple of different currencies—this is one of them for some time now—and I will continue to add when I get the opportunity to pick up cheap currency, such as the British Pound against the Japanese Yen or the US Dollar against the Japanese Yen.

I have no interest whatsoever in shorting, and if the Bank of Japan does come into the picture and starts intervening, that’s fine. I’ll just buy it at lower levels.

Begin trading our daily forecasts and analysis. Here is a list of Forex brokers in Japan to work with.

Christopher Lewis is a technical analyst and market commentator at DailyForex with more than two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management. Christopher produces daily written and video analysis for traders who rely on technical setups to navigate volatile market conditions

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

The GBP/USD currency pair has been trapped inside a broad range for months, and on the surface not much seems to have changed. Yet the pair is beginning to look a little more interesting again, not because it has escaped that long-running range, but because the price action inside it is starting to feel more orderly and more directional than it has for a while.

That shift matters. When a market stays range-bound for long enough, traders often stop expecting clean movement at all. But the recent behavior in the GBP/USD suggests that short-term pressure may now be building in a way that deserves closer attention, even if the larger multi-month structure is still intact.

Why GBP/USD Matters More Now

Part of what makes the GBP/USD more interesting this week is that the market is no longer being shaped only by technical levels and the U.S. Dollar story. The United Kingdom has a new government and prime minister appointed this week, which creates a fresh layer of uncertainty and possibility around fiscal priorities, political credibility, and how aggressively the new administration will try to shift the economic narrative.

That political backdrop matters because currencies do not wait for policy to be implemented before reacting. If traders begin to believe that the new government is serious about changing fiscal direction, the British pound could start responding quickly to expectations alone. At the same time, the U.S. Dollar has also been threatening to break toward fresh long-term highs, even if there is no clear sign that such a breakout is happening imminently.

What Market Behavior Is Showing

In the price chart, the clearest near-term feature is a symmetrical bearish price channel that has contained the GBP/USD’s price action for more than a week. The manually drawn channel is notable because it appears to align extremely closely with a linear regression analysis study over the same period as well, which makes the structure look more credible and less arbitrary than a loosely drawn visual guide. When a market respects a channel in that way, it usually suggests that sellers are acting with more consistency than buyers. The fact that the price channel is symmetrical also suggests relative reliabililty.

Another bearish factor is the persistence of the resistance level at $1.3387 over recent hours. The price has been unable to establish itself above that level, and that repeated hesitation fits the tone of a market that still looks more comfortable drifting lower inside its channel than breaking cleanly higher. This does not prove that downside is inevitable, but it does suggest that the near-term technical balance remains tilted to the bearish side.

GBP/USD Price Chart

The U.S. Dollar Still Has Support

The dollar side of the equation is also important. Relative strength in the U.S. dollar continues to be supported by renewed inflation concerns tied to rising crude oil prices and by the geopolitical risk premium attached to increasing warfare between the United States and Iran. The conflict is intensifying and there are signs it might devolve into full scale war in the Middle East quite soon. The Strait of Hormuz remains closed and this will probably push the price of crude oil higher and feed more oil price inflation into the global economy, which could tend to strengthen the US Dollar. Even without an immediate bullish breakout by the US Dollar Index above its key resistance level at 101.39, that backdrop helps explain why the greenback continues to find support.

The Blind Spot in GBP/USD Analysis Today

The main blind spot here is that the British pound may now be more sensitive to domestic politics than the price chart alone suggests. A new government trying to make an impression can move quickly, and any surprise shift in economic policy, fiscal spending, taxation, or growth strategy could override even the strongest technical setup within only a few minutes.

That is what makes this pair potentially more unpredictable than the bearish channel implies. Traders might be tempted to trust the technical structure because it has been clean and persistent, but sudden policy headlines from the new government could trigger sharp repricing in sterling and turn an orderly market into a volatile one.

Alternative Scenario: Price Breaks Higher

The alternative scenario is that the GBP/USD price will break above both the resistance level at $1.3387 and the upper boundary of the bearish channel, which is just a few pips above that. If the U.S. dollar fails to strengthen further and remains capped by resistance in the DXY around 101.39, then the technical pressure favoring more downside could fade quickly. Once the trend line is broken, day traders will likely pile in and buy. That might just be a spike higher than doesn’t last long, however.

In that case, the pound could also benefit from a more constructive interpretation of the new government and from any supportive tone out of the Bank of England. Just as political change can weigh on a currency, it can also improve sentiment quickly if traders decide the new administration is not likely to make radical changes to fiscal policy. In fact, this tends to be the consensus opinion of most economists and political analysts of the UK.

Where Next for the GBP/USD?

The balance of risk still appears to favor downside in the near term. The bearish channel has held, resistance at $1.3387 has remained sticky, and the broader dollar backdrop still looks firmer than many had expected given the inflation data.

Even so, the GBP/USD currency pair remains within a six month price range, and it is entirely possible that this range simply continues. The coming sessions might reveal whether the recent increase in directional pressure is the start of something more meaningful, or just another temporary move within the same long-term structure. Having said that, it is worth noting that the range is about four hundred to five hundred pips wide, so there is plenty of room for profitable trading within it, even relatively long-term trading.

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