GBP/USD is set for further gains in the near-term, having recently climbed to pre-war levels around 1.36, thanks to renewed optimism from resuming U.S.-Iran peace talks, though sterling bulls may find the road ahead more difficult as well-established economic concerns move back into focus.

The pound's ascent against the dollar is currently outpacing most other major peers, an outperformance is likely driven by a technical squeeze, as the market's large net spec GBP short position is pared in light of shifting geopolitical risks.

Sterling continues to find support from a higher expected Bank of England rate path relative to other major economies, maintaining its yield advantage for the time being.

However, sterling's recent strength may be reaching a point of diminishing returns. As de-escalation becomes entrenched in market pricing, the narrative is expected to shift. Traders may soon begin to view the BoE’s aggressive rate trajectory as a potential liability rather than an asset.

With the immediate geopolitical fog lifting, domestic concerns regarding UK inflation, sluggish growth and fiscal concerns may move back into focus, suggesting that the path forward above 1.36 and toward January highs near 1.39 may face increasing resistance.

Technically, GBP/USD faces immediate resistance at the daily high of 1.3590, and the psychological 1.3600 barrier. A sustained break above these levels would signal further bullish momentum as bulls likely target the February 11 high at 1.3712 and the 2026 high at 1.3867 struck on January 27. On the downside, initial support is found at the Upper Bollinger Band at 1.3544. A deeper correction would target today's low of 1.3501, with major long-term support clustered around the 100- and 50-DMAs just above 1.34.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)