GBP/USD slows near 1.3700 as politics muddy the outlook

GBP/USD put together a solid two-day rally, gaining over 1.0% and pushing close to the 1.3700 level. The move helped the pair to recover about half of the drop from the 4½-year peak at 1.3868 reached at the end of January, thanks largely to renewed dollar weakness. That said, with the U.K. Prime Minister facing another leadership challenge, the pair couldn't match the strength seen in other FX majors like EUR/USD.

For now, the pair is hovering just below 1.3700 and well short of the 1.3730–1.3760 resistance zone. The bulls will need to pass through this area to gain access to the 1.3815–1.3840 region. If momentum really picks up, the 1.3950 zone could come into play next.

The momentum indicators are still pointing in the right direction. The RSI is comfortably above 50 and the stochastic oscillator continues to grind higher, suggesting there may be more upside left. Still, it’s worth keeping an eye on the RSI, which hasn’t yet managed to print a fresh higher high, suggesting some caution is necessary.

On the downside, initial support sits around 1.3615, backed up by the 20-day SMA. A break lower could shift focus towards the 1.3540 area, where the 38.2% Fibonacci retracement of the October–January rally lines up. Below that, the trendline near the 50-day SMA may prevent any deeper pullback near 1.3480, while the 200-day SMA around 1.3425 should help prevent a broader bearish turn.

Overall, GBP/USD is still leaning bullish, but with heavy resistance overhead and political risks in the background, the bulls will need a clear catalyst to push the pair decisively above 1.3840.