Sterling is likely to remain confined within its recent ranges as geopolitical tensions and domestic political challenges continue to weigh heavily on the currency.

Despite the heavy atmosphere, the pound staged a steady recovery today, rising from Asia session lows of 1.3548 to trade as high as 1.3548 in early NorAm. This move came amid heightened Middle East angst after President Donald Trump rejected Iran's response to U.S. peace proposal, which initially spiked safe-haven demand before markets settled into a cautious holding pattern. In the UK, last week’s local election losses by the ruling Labour Party have called into question the staying power of Prime Minister Keir Starmer, who has responded by promising to be bolder and with a plea to avoid the chaos of a leadership contest.

Sterling is also dogged by persistent economic malaise and fiscal concerns. While high interest rates are being used to combat stubborn inflation, they simultaneously act as a headwind to growth, likely capping any significant appreciation.

Technically, GBP/USD remains stuck in a 1.3550–1.3650 range. Beyond that range, resistance is noted at the upper 30-day Bollinger Band near 1.3722, while the 100-DMA at 1.3483 provides key support. Although a surprise peace deal could trigger an algo-driven surge higher, due to large net speculative short positions, any such rally is expected to be transitory as focus inevitably shifts back to the UK's downward-tilted economic fundamentals.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)