Sterling fell on Wednesday, retreating further from its April 28 high of 1.3445, but a reversion to gains remains possible for GBP/USD as the dollar selloff tied to tariff concerns appears largely intact — albeit paused — as markets await clarity on U.S. trade policy.

In the current tariff-driven environment, UK-U.S. rate and inflation dynamics have taken a back seat, with traders offloading dollars on rising stagflation fears.

Those stagflation concerns were bolstered by Wednesday's data showing an unexpected contraction in U.S. GDP during the first quarter along with a surprisingly large jump in core PCE prices.

With tariff risk still elevated, further dollar weakness seems likely. The recent dollar bounce may be temporary position adjustment as markets await further developments.

IMM data suggests more room for further GBP/USD gains. The current GBP/USD long sits at 20,490 contracts significantly below positioning in the lower yielding euro (+65,028) and yen (177,614).

More broadly, heavily short positions in CAD and AUD could be reversed to raise USD liquidity, potentially fueling further sterling gains.

Technically, sterling support at the rising 10-DMA at 1.3337 remains intact, with bulls likely in control as long as GBP/USD stays above 1.3079, the 50% retracement of the 1.2712–1.3445 rally.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)