By Rania Gule, Senior Market Analyst at XS.com – MENA
The GBP/USD pair continues to move in an environment highly sensitive to geopolitical risks, as recent developments in the Middle East have shown that markets now react to political news faster than to traditional economic data. Although the British pound started the week with relative strength, those gains quickly evaporated amid rising tensions, reflecting the fragility of the uptrend and investors’ lack of confidence in the pound’s ability to maintain sustained positive momentum amid ongoing global uncertainty.
In my view, geopolitical factors have become the main driver of the GBP/USD pair at the current stage, surpassing monetary and economic factors—a significant shift in market dynamics. Military escalation and threats related to the closure of the Strait of Hormuz or targeting energy infrastructure increase global risk aversion, pushing investors toward the US dollar as a safe haven. Therefore, I believe that any upward movement in the pound during this period remains vulnerable to rapid reversals, especially if new signs of conflict escalation or setbacks in diplomatic efforts emerge.
I also believe that the overall picture still clearly leans negative, as the pair continues to trade below its long-term moving average, reflecting a continued bearish trend from a strategic perspective. In my assessment, the pair’s failure to stabilize above key resistance levels during recent rebounds indicates that the market still lacks genuine buying strength capable of changing the general trend. Consequently, I expect any bullish moves at present to remain within a temporary corrective range unless there is a significant improvement in economic or political fundamentals.
I see the recent resilience of the pound largely attributable to the relatively hawkish stance of the Bank of England compared with some other central banks, as it has maintained a cautious tone on inflation, providing temporary support to the currency. However, I believe the impact of UK monetary policy will remain limited if energy prices continue to rise due to geopolitical tensions, as this would pressure economic growth and restrict the central bank’s ability to tighten policy significantly. Hence, I see the pound’s future prospects remaining tied to the balance between inflation and growth—a fragile balance at present.
Regarding economic data, the UK inflation rate holding near 3% does not fully reflect potential inflationary pressures, particularly given the sharp rise in energy prices that has yet to appear in official indicators. In my view, markets may be surprised by a new inflation surge in the coming months if the geopolitical crisis continues, which could prompt the Bank of England to delay any policy easing. Nevertheless, this scenario would not necessarily support the pound, as rising inflation amid slowing growth could lead to a stagflationary environment.
As for the UK economy, I see recent retail sales and economic growth data pointing to a gradual slowdown in activity—a trend that could accelerate if global uncertainty persists. The British consumer faces increasing pressures from higher living costs and energy prices, which could reduce consumer spending in the coming months. Therefore, I expect the UK economic performance to remain below the level needed to strongly support the pound, especially in competition with a US economy that still shows some resilience.
On the other hand, I believe US economic data—particularly the nonfarm payroll report and Federal Reserve officials’ statements—will play a pivotal role in determining the dollar’s direction in the near term. If data show the US labor market remains strong, this could reinforce expectations of higher interest rates for longer, supporting the dollar and pressuring GBP/USD. Conversely, weaker-than-expected data could trigger a temporary pullback in the dollar, opening the door for a corrective rebound in the pound.
In my assessment, the most likely short-term scenario is continued trading within a volatile, downward-leaning range, with support around 1.3200 acting as a key pivot for determining the next direction. If the pair breaks this level clearly, we may see an acceleration of the decline to lower levels in the coming weeks. If support holds and signs of easing geopolitical tensions appear, the pair may experience a limited corrective upward wave before resuming the general downtrend.
In the medium term, I see the future of GBP/USD remaining linked to three main factors: developments in the Middle East conflict, the monetary policy trajectory in the US and UK, and global economic performance. If geopolitical uncertainty persists and energy prices rise, this will strengthen the dollar and increase pressure on the pound. Therefore, I believe risks still lean to the downside, and investors should approach any temporary market rallies with caution.
In conclusion, my view is that the pound remains at risk at present, and the general trend for GBP/USD leans downward unless there are significant changes in the geopolitical or economic landscape. Despite the potential for short-term technical rebounds, I expect negative pressures to dominate the pair’s movement in the coming period, alongside continued market volatility and heightened investor sensitivity to both political and economic news.
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