Sterling is showing resilience, currently trading near 6-1/2-month highs, even with a strong U.S. dollar stemming from new sanctions on Iran.

After climbing to 1.3675 on Friday, the pound's ascent paused on Monday. This breather comes amid ongoing geopolitical tensions, typical light summer liquidity conditions, and traders adjusting positions ahead of the Fed's Jackson Hole Symposium.

Despite a 3% rise in GBP/USD since late July, spurred by a less hawkish stance from the Federal Reserve, speculative short positions on sterling haven't significantly reduced. This suggests there's still potential for further gains if more of these short positions are closed out. Should Chair Kevin Warsh fail to clearly convey the Fed's commitment to proactively managing inflation at Jackson Hole, the pound could continue its rally. Bulls might aim for the February 11 high of 1.3712, with a longer-term target at the January 27, 2026, high of 1.3867.

With Fed and BoE policy expectations moving in tandem in 2026, extended sterling strength is likely to follow the recent two-steps-forward, one-step-back path as entrenched GBP shorts lighten. However, slightly more hawkish BoE expectations relative to the Fed in 2027 should continue to support GBP/USD, though considerable headline risk remains around the fluid Middle East outlook and UK and U.S. fiscal concerns.

Technically, initial resistance for GBP/USD is found at 1.3675, the Friday high, and 1.3712, the February 11 daily high. Support can be found near 1.3620, the Friday and Monday low area, followed by the rising 10-day moving average at 1.3562.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)