Sterling Faces Political Test as Technical Levels Come Into Focus

Sterling has held up relatively well in recent sessions, even as markets have steadily pared back expectations for Bank of England tightening this year. Pricing now reflects just one additional 25bp hike, while our base case remains for rates to stay unchanged. That residual tightening expectation may linger unless we see a meaningful decline in oil prices, which could further ease inflation concerns.

However, the macro story isn’t the only driver in play. UK politics is back in focus. Prime Minister Keir Starmer is set to address parliament today, aiming to clarify details around the approval process for former UK ambassador to the US, Peter Mandelson. The session is expected to be challenging and could extend into tomorrow, when a senior civil servant involved in the process faces a parliamentary hearing. Political uncertainty could weigh on sentiment and inject near-term volatility into GBP.

GBP/USD Technical Analysis

From a technical perspective, GBP/USD looks vulnerable after its recent rally. The pair is now hovering above a key support zone, with the 50% Fibonacci retracement level around 1.3380–1.3400 coming into focus.

This area is significant:

• It aligns with prior consolidation
• Acts as a natural midpoint of the recent bullish leg
• Could serve as a decision zone for near-term direction

The key question now: can we see a bounce from this 50% retracement?

A hold above this region may invite dip buyers back into the market, potentially stabilizing price action. However, a clean break below could open the door for a deeper retracement toward the 61.8% level.

Bottom Line

With political headlines intensifying and rate expectations shifting, GBP/USD could give back a portion of its recent gains this week. All eyes are now on whether the 1.3380–1.3400 support zone can hold—or if broader downside momentum takes over.