GBP/USD Weekly Forecast: British Pound’s struggle with 200-day SMA set to extend
- The British Pound’s recovery faltered above 1.3450 against the US Dollar, but booked a weekly gain.
- GBP/USD traders look to US-Iran headlines, UK political drama, amid a relatively light data docket ahead.
- Technically, GBP/USD sees downside risks amid a bearish daily RSI, while struggling around the 200-day SMA.
The British Pound (GBP) stalled its recovery from six-week lows near 1.3300 against the US Dollar (USD), as sellers continued to lurk above the 1.3450 region.
British Pound stood resilient
Despite the late struggle, GBP/USD booked a weekly gain, reversing a part of the previous week’s heavy losses.
The pair kicked off the week on a bearish note and stretched lower to hit six-week troughs near 1.3300 following the geopolitical re-escalation over the weekend after the much-touted meeting between US President Donald Trump and his Chinese counterpart, Xi Jinping, yielded no material results for the Iran war.
Trump warned, via a Truth Social post, on Sunday: “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them,” and added “TIME IS OF THE ESSENCE!”
Furthermore, Reuters reported that a fire near the United Arab Emirates’ (UAE) nuclear power plant was launched by Iran or one of its proxies in what the UAE called a “dangerous escalation”. Saudi Arabia also reported that three drones it intercepted had entered from Iraqi airspace.
Among other Mideast geopolitical tensions, Axios reported that the US is monitoring drone threats from Cuba. These developments further boosted Oil prices, with markets scurrying for safety in the go-to reserve currency, the USD.
However, the tide quickly changed against the Greenback as an optimism wave over a likely US-Iran peace deal swept markets after US President Donald Trump delayed military attacks on Iran, citing that the US would be “probably satisfied” if it could reach an agreement with Iran that prevents Tehran from obtaining a nuclear weapon.
The USD soon regained traction as markets refused to buy into the hopes of a US-Iran peace deal. Meanwhile, deteriorating labor market conditions in the United Kingdom (UK) revived the bearish sentiment around the British currency amid the ongoing political turmoil.
The UK’s Unemployment Rate rose to 5% in March against expectations it would remain steady at 4.9%, data from the Office for National Statistics (ONS) said on Tuesday. Payrolled employees fell by 28,000 in March and an estimated 100,000 in April, with job vacancies dropping to their lowest since 2021.
A fragile UK political scenario, with Prime Minister Keir Starmer facing mounting pressure to resign following the resignation of Health Secretary Wes Streeting and several government officials after the ruling Labour Party suffered a heavy defeat in local elections amid strong gains for Reform UK, right-wing parties, and the Greens.
Within the Labour Party, internal efforts intensified to support Greater Manchester Mayor Andy Burnham as a potential future leader of the ruling party.
On Wednesday, the UK Consumer Price Index (CPI) inflation data for April failed to provide any respite to Pound buyers. British inflation eased to 2.8% in April, against an expected cooling of 3%, from 3.3% in March.
Following the CPI data, UK rate futures pointed to around 52 basis points (bps) of Bank of England policy tightening by December vs. about 60 bps on Tuesday. This also contributed to the stalled recovery momentum in the British Pound.
Since then, the pair struggled to gain upside traction and consolidated the weekly gains, with the Greenback standing tall amid increased interest rate-hike wagers, concerning the US Federal Reserve (Fed) and uncertainty surrounding the US-Iran peace talks.
In the latter part of the week, Al-Arabiya carried a report, citing that a final draft of a US–Iran agreement was said to be completed with Pakistani mediation, with an official announcement potentially coming within hours.
Risk flows returned with this report and sent Oil prices lower, allowing GBP/USD to hold its ground. However, markets remained wary over a breakthrough in the US-Iran peace talks as both sides remained at odds over key issues.
“The US and Iran stuck to opposing stances on Thursday over Tehran's uranium stockpile and controls on the Strait of Hormuz, although US Secretary of State Marco Rubio said there had been "some good signs" in talks,” per Reuters.
Furthermore, downbeat UK preliminary business PMI and retail trade data kept the pair’s upside attempts contained.
"UK flash PMI data for May on Thursday indicated that private sector activity contracted for the first time in over a year, with the composite output index falling sharply to 48.5 points from 52.6 in April,” BNY analysts noted.
On Friday, UK Retail Sales volumes plunged by 1.3% on the month in April, the biggest monthly decline since May 2025, following a 0.6% rise in March.
Week ahead: What to watch out for
Developments around a potential US and Iran peace deal will continue to hog the limelight and emerge as the key market driver in a holiday-shortened and data-light week ahead.
US stock and bond markets are closed on Monday for Memorial Day, while the UK markets are shut in observance of the Spring Bank Holiday.
Beyond geopolitics, focus will remain on the US second estimate of the first-quarter Gross Domestic Product (GDP) report due in the second half of the week, alongside the core Personal Consumption Expenditures Price Index (PCE) data.
Meanwhile, speeches from Fed officials under the new leadership of Chairman Kevin Warsh will also be closely scrutinized for a fresh take on the central bank’s monetary policy outlook.
A few BoE policymakers, including Governor Andrew Bailey, will also take the rostrum in the upcoming week.
GBP/USD technical analysis
In the daily chart, GBP/USD trades with a mildly bearish bias as spot fluctuates near the 200-day simple moving average (SMA), currently located at 1.3423, but below a tight cluster of shorter-term averages. The 21-day, 50-day and 100-day SMAs all sit overhead, suggesting the pair is consolidating under a cap after the recent pullback, while the Relative Strength Index (14) around 46 hints at fading bullish momentum and a lack of directional conviction.
On the downside, immediate support is located at the 200-day SMA at 1.3423, and a sustained break beneath this level would open the door to a deeper corrective phase in the coming sessions, possibly targeting the May 18 low of 1.3300. On the topside, initial resistance is found at the 50-day SMA near 1.3435, followed by the 100-day SMA around 1.3477, with the 21-day SMA at 1.3506 reinforcing a broader supply zone that bulls would need to clear to revive a constructive short-term outlook.
(The technical analysis of this story was written with the help of an AI tool.)
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
