The British Pound (GBP) strengthened against the US Dollar (USD) for the second consecutive day on Friday, with the GBP/USD pair climbing above 1.3200. This move marks a positive shift on the weekly chart, although the broader bearish trend for the Pound remains intact [1]. The recent uptick in Sterling was attributed to a faltering US Dollar rally, as crude oil prices returned to pre-war levels, specifically those seen before the US-Israel attack on Iran on February 28. This decline in oil prices has reduced demand for the safe-haven US Dollar and provided some relief to riskier assets like the Pound [1].
Despite the current weakness in the US Dollar, the article notes that this trend may be short-lived. The 'US exceptionalism' narrative, supported by strong macroeconomic data and significant investment inflows driven by the AI boom, is expected to continue supporting the Greenback unless there is a radical change in circumstances [1]. Additionally, US inflation remains elevated, with the Personal Consumption Expenditures (PCE) Price Index accelerating to a 4.1% year-on-year growth in May, the highest in three years. This has reinforced investor expectations of further Federal Reserve rate hikes, which could provide additional support to the US Dollar [1].
In the UK, political uncertainty is contributing to a cautious market stance. The initial positive reaction to Prime Minister Keir Starmer’s resignation on Monday shifted to caution later in the week. Investors are reportedly giving Andrew Burnham, considered the most likely successor, the benefit of the doubt but are waiting for more clarity on his policies before making significant directional bets on the GBP/USD pair [1].
Overall, while the Pound has seen short-term gains, ongoing political uncertainty in the UK and expectations of continued US monetary tightening are likely to limit Sterling's upside in the near term [1].
CONCLUSION
The British Pound has rebounded above 1.3200 amid a weaker US Dollar and easing oil prices, but the broader bearish outlook persists due to ongoing UK political uncertainty and expectations of further US rate hikes. Market participants remain cautious, awaiting more clarity on UK leadership and US economic policy.