British Pound rebounds as holiday-thinned trade slows USD bulls

• GBP/USD recovers from three-month low but remains weekly loser.
• Fed’s hawkish tilt keeps DXY anchored near 12-month highs.
• Ceasefire strains and UK politics cloud Sterling’s recovery.

The Pound Sterling recovers some ground after reaching a three-month low on Friday at 1.3163, sponsored by the Fed’s hawkish tilt, but edges up 0.18% amid thin trading conditions due to a holiday in the US. The GBP/USD trades at 1.3226, yet it is poised to end with weekly losses of 1.25%.

GBP/USD trims losses as traders weigh Fed, BoE and geopolitics

Market sentiment remains fragile despite the recovery from the US-Iran deal. During the last two days, hostilities between Hezbollah and Israel tested the Middle East agreement signed digitally by Washington and Tehran.

Recently, a Hezbollah source stated that if Israel adheres to the ceasefire, they will adhere, but if Israel does not, they have the right to respond according to Al-Jadeed. Regarding this, an Israeli official said that we are in a test of the ceasefire now, but if Hezbollah attacks, they will respond, Channel 13 reported.

Back to macroeconomics, the Federal Reserve’s hawkish tilt, sparked by nearly half of the FOMC members expecting a rate hike towards the year-end, drove the Greenback to a 12-month high of 101.12, about to challenge the May 16, 2025, peak at 101.26. As of writing, the US Dollar Index (DXY), which tracks the buck's value against six currencies, is flat but remains above 101.00.

The DXY added to gains due to the escalation of the Israel-Lebanon conflict, though news that Hezbollah and the Israeli army declared a ceasefire relieved traders.

In the UK, the schedule provided a benign inflation reading ahead of the Bank of England’s policy decision on Thursday, in which they hold rates at 3.75% with a 7-2 vote split, with Pill and Greene opting for a rate hike, sponsored by households seeing inflation expectations at the highest level since 2009.

Furthermore, UK data showed that retail sales were stronger than expected, but other data showed a larger-than-expected budget deficit. This adds to investors' fears that fiscal spending could get out of control, along with Labour Mayor Andy Burnham's victory in northern England, setting the stage for a clash with UK Prime Minister Keir Starmer.

What’s in the calendar for the next week?

Next week, the UK economic docket will feature Flash PMIs and speeches by Bank of England officials. Across the pond, the US schedule will feature speeches by Federal Reserve officials, Flash PMIs, housing and jobs data, Gross Domestic Product (GDP) figures, and the Fed’s favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3227 with a bearish near-term bias, as spot holds below the clustered 50-, 100- and 200-day simple moving averages (SMAs) grouped around 1.3463 and beneath the descending resistance trend line that broke near 1.3546. The Relative Strength Index (RSI) at 34 is edging toward oversold territory, hinting that downside momentum is still dominant but could moderate if sellers hesitate around nearby structural floors.

On the topside, initial resistance is reinforced by the triple SMA cluster around 1.3463, with the descending trend-line barrier near 1.3546 acting as the next cap should a corrective bounce extend. On the downside, immediate focus is on the current-price area around 1.3227 as a short-term pivot, with more meaningful chart support emerging closer to the prior uptrend reference near 1.3159; a sustained break below this latter zone would expose deeper losses in the coming sessions.

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