GBP/USD bounces off eleven-week lows as 1.34 holds on Iran sell-off
- The Pound Sterling dropped to its lowest since mid-December before recovering near 1.3400 as safe-haven Dollar demand fades mid-session.
- The BoE held rates at 3.75% in February by a narrow 5-4 vote, with Governor Bailey calling the March 19 decision a "genuinely open question" after services inflation printed at 4.4%, above the Bank's 4.1% forecast.
- Labour's shock by-election loss in Gorton and Denton to the Green Party has added a layer of UK political uncertainty, while Chancellor Reeves's Spring Statement later this week will test sentiment further.
GBP/USD fell around one-half of one percent on Monday, briefly sliding to an eleven-week low around 1.3310 in early trade before staging a mid-session recovery to settle close to the 1.3400 handle. The drop was driven almost entirely by broad US Dollar strength as the Iran conflict triggered a rush into safe-haven assets, though Sterling's recovery from the lows left a long lower wick on the daily candle, suggesting buyers stepped in near the 200-day Exponential Moving Average (EMA). Over the past week, Sterling was one of the weaker G10 currencies, losing ground to the US Dollar, Australian Dollar, Canadian Dollar, and New Zealand Dollar, while holding roughly flat against the Swiss Franc and gaining only against the Euro and Japanese Yen.
The Bank of England (BoE) held rates at 3.75% in February by a narrow 5-4 vote, with Governor Andrew Bailey casting the deciding vote to hold. Testifying before Parliament's Treasury Committee last week, Bailey described the March 19 decision as "a genuinely open question," noting that services price inflation came in at 4.4% in January, well above the BoE's 4.1% forecast. Chief Economist Huw Pill echoed the caution, warning against being "beguiled" by headline inflation falling toward the 2% target. UK labour market data have softened, with unemployment rising to 5.2% and wage growth moderating to 4.2%, which is keeping markets leaning toward a March cut despite the mixed signals from policymakers.
Domestic political uncertainty is also weighing on Sterling. The Green Party's convincing victory in last week's Gorton and Denton by-election, where Labour slipped to third place after holding the seat with a sizeable majority in 2024, has reignited questions about Prime Minister Starmer's leadership ahead of May's local elections. Chancellor Reeves's Spring Statement later this week will be watched closely for updated fiscal projections from the Office for Budget Responsibility (OBR), with any downgrade to the UK's growth outlook likely to compound the currency's recent weakness. On the US side, escalating Middle East tensions, hotter-than-expected January Producer Price Index (PPI) data, and the Federal Reserve's (Fed) reluctance to cut rates before July continue to support the Greenback.
GBP/USD daily chart
Technical Analysis
In the daily chart, GBP/USD trades at 1.3409. The near-term bias is mildly bearish as spot has slipped below the 50-day exponential moving average, while the 200-day average at 1.3425 now hovers just above price and acts as dynamic resistance. The recent failure to sustain gains above the mid-1.36s has transitioned into a sequence of lower closes, and daily stochastic holding in the lower half of its range signals persistent downside pressure rather than capitulation selling.
Initial resistance is located at the 200-day EMA near 1.3425, followed by the 1.3520 area where the 50-day EMA previously guided the advance. A daily close back above 1.3520 would be needed to ease the current downside bias and open the way toward 1.3695. On the downside, immediate support sits around 1.3350, ahead of a lower band of demand near 1.3250, where a loss would confirm a deeper corrective phase toward 1.3150.
In the weekly chart, GBP/USD trades at 1.3409. The near-term bias is mildly bullish as price holds a clear series of higher weekly closes above the rising 200-week exponential moving average near 1.30, confirming an underlying uptrend structure. The Stochastic oscillator remains in positive territory after retreating from overbought readings, indicating easing but still positive momentum rather than a full bearish reversal, which favors consolidation above recent lows rather than a sustained downside break.
Initial resistance stands at the recent swing area around 1.3650, where prior advances stalled, followed by a stronger barrier near 1.37 that guards any extension toward last quarter’s highs. On the downside, immediate support emerges at 1.3350, with a deeper floor at 1.3250 that aligns the latest reaction low with proximity to the 200-week EMA zone near 1.30. A weekly close below 1.3250 would weaken the bullish bias and expose the 1.31–1.30 band, while sustained trading above 1.3350 would keep focus on a potential retest of 1.3650.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
