Sterling faces an increasingly challenging near-term outlook, navigating a fluid monetary policy landscape and lingering geopolitical risks as dollar strength and domestic political risks weigh on the pair.

Wednesday's signing of the U.S.-Iran memorandum of understanding, aimed at ending regional hostilities and reopening the Strait of Hormuz to shipping, offers a tentative glimmer of hope for alleviating persistent UK and global inflation. Should improved shipping conditions materialise, they could, in time, allow the Bank of England (BoE) and other central banks to begin lowering rates to stimulate growth. However, immediate headwinds remain formidable. The Federal Reserve held rates steady as expected but struck a decidedly hawkish tone, with members signaling a potential rate hike into year-end 2026. Markets have interpreted this as possibly more than one 25 basis point increase, catapulting the dollar higher and pressuring GBP/USD through the key 1.33 support level. Today's BoE rate hold, while couched in somewhat more cautious language, offers limited offsetting support. The central bank has adopted a decidedly more reserved near-term outlook on rates — a narrative reinforced by recent below-forecast UK CPI data that, for now, keeps the BoE firmly in wait-and-see mode. Adding to sterling's vulnerability, today's Makerfield by-election presents potential political and fiscal risks for GBP/USD.

Technically, with 1.33 broken, traders now look to Thursday's low at 1.3206 as immediate support, followed by the 100-week moving average at 1.3188. To the upside, resistance sits at the falling 21-day moving average at 1.3405 and the 100-day moving average at 1.3454.
Sterling Chart:


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