The near-term outlook for sterling suggests continued volatility, with several factors poised to influence its trajectory, including relative U.S.-UK inflation expectations, the lingering Middle East conflict and UK political uncertainties.

Sterling saw a bump up today, rising from session lows below 1.34 after the U.S. monthly core PCE inflation showed an unexpected deceleration. This data somewhat eased expectations for aggressive Federal Reserve policy in December, though it's only one month's worth of data.

Tensions in the Middle East remain the key guiding light for risk assets and are likely to tamp down on any bullish sterling moves, given lingering UK inflation, which is slated to keep the BoE on a decidedly hawkish path in H2 2026, which will likely inhibit UK growth in the near-term.

There is also the specter of UK political uncertainty, all of which is likely to keep GBP/USD from moving above recent trend highs near 1.35, barring a definitive Iran peace headline or a surprise reduction in UK inflation.

Technically, the pair is navigating crucial thresholds; solid downside support is established at today's flash low of 1.3368, followed by the lower daily Bolli at 1.3354. Conversely, stiff resistance is building overhead, first just above today's high at 1.3436 at the 50-DMA by 1.3444, and more critically around the 100-DMA at 1.3476 and the Monday and Tuesday highs just above 1.35.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)