GBP/USD Price Forecast: UK political uncertainty calls fresh leg of downfall ahead

GBP/USD trades lower to near 1.3220 on renewed UK political uncertainty.
US President Trump says UK PM Starmer could resign on failing to fix immigration and energy issues.
The Fed is expected to deliver at least two interest rate hikes this year.

Sagar Dua FXStreet

The GBP/USD pair recovers some of its early losses, but is still 0.1% down to near 1.3220 during the early European trading session on Monday. The pair remains under pressure amid renewed United Kingdom (UK) political uncertainty after comments from United States (US) President Donald Trump that Prime Minister (PM) Keir Starmer could resign on failing to fix immigration and energy issues.

"Keir Starmer will resign as Prime Minister of The United Kingdom. He failed badly on two very important subjects- IMMIGRATION AND ENERGY (OPEN NORTH SEA OIL!). I wish him well!," US President Trump wrote in a post on Truth Social.

Meanwhile, calls from Labour lawmakers against PM Starmer continuing UK leadership have also accelerated, following Andy Burnham's strong win in the Makerfield constituency in north-west England.

A Reuters report has shown that UK PM Starmer could decide as early as Monday whether to remain in office and fight a leadership contest or begin the process of stepping down.

Also, an upbeat US Dollar (US) due to increased expectations that the Federal Reserve (Fed) could deliver two interest rate hikes this year is also keeping Cable under pressure. According to the CME FedWatch tool, the odds of the Fed delivering at least two interest rate hikes this year is 58.5%, a sharp increase from 17.1% seen a week ago.

Hawkish Fed bets have strengthened following the first monetary policy announcement on Wednesday under new Chairman Kevin Warsh.

GBP/USD technical analysis

Bias: GBP/USD trades lower at around 1.3218 at press time. The pair maintains a bearish near-term tone as it holds below the 20-period Exponential Moving Average (EMA) at 1.3360. Also, a breakdown of the Symmetrical Triangle strengthens the bearish bias. The Relative Strength Index (RSI) near 34 hovers just above oversold territory, hinting at a dominant downside momentum.

Resistance: On the topside, initial resistance is seen at the broken rising trend-line region near 1.3250, followed by the 20-period EMA at 1.3360.

Support: On the downside, the pair could slide towards the November 25 low at 1.3096 if it resumes its decline below the June 19 low at 1.3163. The pair could extend its decline towards the psychological support at 1.3000 once it falls below 1.3096.

(The technical analysis of this story was written with the help of an AI tool.)

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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