Sterling is expected to remain under pressure, reacting to headline-driven volatility in the near-term as markets balance technical support levels against a fracturing UK political landscape and Middle East peace ructions.

The pound traded with a slight downward bias today, last at 1.3502, moving in lockstep with a broadly stronger U.S. dollar while internal pressures keep GBP on the defensive. Confidence in Prime Minister Keir Starmer’s leadership has been further eroded by the resignation of Health Minister Wes Streeting. However, the currency has found support, for now, in the fixed-income space as retreating long-end gilt yields have alleviated some of the immediate fiscal angst that previously weighed on sterling. Technically, the pair is currently testing a thicket of support. While it dipped to a session low of 1.3495 in early NorAm trading, it remains tenuously above the psychological 1.3500 handle and the critical 100-DMA at 1.3484. Further downside protection is visible at the 200-DMA at 1.3427 though a breach of the 200-DMA would signal a more profound bearish shift toward the daily cloud base at 1.3322.

The 2022 crisis of market confidence during Liz Truss's tenure as prime minister remains fresh in the minds of many market participants, who will judge any threats to Starmer's leadership on the likelihood that any successor would loosen fiscal policy, with the gilts market serving as the main arbiter.

For now, upside potential for GBP/USD appears capped by the 10-day SMA at 1.3560 and more significantly by recent trend highs in the mid-1.36s, especially as geopolitical uncertainties and inflation expectations remain fluid.
Sterling Chart:


(Paul Spirgel is a Reuters market analyst. The views expressed are his own)