Sterling once again found support just below 1.34, rebounding despite below-forecast U.S. initial jobless claims, which unexpectedly pushed UST yields lower across the curve, but the pound remains vulnerable.

Concerns over U.S. and UK fiscal viability appear to have eased for the moment, to cable's benefit. A key risk looming over the pound remains monetary policy uncertainty after the BoE's recent hawkish 25bp cut revealed division among BoE members, with five votes to cut 25bp, two votes to hold and two votes to ease by 50bp. Although the recent above forecast UK CPI justified a more temperate 25bp cut, policy uncertainty lingers within the BoE.

The recent rise in long-end Treasury yields on U.S. fiscal concerns had in turn been pushing UK gilt yields higher, renewing questions about the ability of British PM Keir Starmer's government ability to manage deficits amid stubborn inflation and weak growth.

For now, GBP/USD bulls are supported by more pronounced fiscal risks in the U.S., placing greater downward pressure on the dollar.

However, if Trump’s proposed tax cuts expand the U.S. deficit further, rising UST yields may drive gilt yields higher as well — tightening fiscal conditions on both sides and potentially capping GBP/USD upside as traders jettison sterling longs seeking refuge in safer assets such as the euro, yen, or bitcoin.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)