The British pound is under pressure from two directions. Investors are assessing a possible shift in Bank of England policy while political uncertainty rises following a cabinet reshuffle under new Prime Minister Andy Burnham.
At the same time, escalating geopolitical risks are driving demand for the US dollar, gold and government bonds. The broader risk-off move is weighing on sterling and other major currencies.
Key points
UK politics
• Andy Burnham has become Britain’s seventh prime minister since the 2016 Brexit referendum.
• He pledged to maintain fiscal discipline while signalling possible tax relief through a higher personal allowance.
• Rachel Reeves resigned as Chancellor of the Exchequer during the cabinet reshuffle.
• John Healey has been appointed as the new chancellor.
Bank of England policy
• The Bank of England meets on July 30 and is widely expected to leave interest rates unchanged.
• Markets currently price an 89% probability of no change.
• Employment, inflation and retail sales data due this week will show whether the BoE can maintain a restrictive stance or will need to move toward faster easing.
Geopolitical risks
• The widening conflict between the US and Iran is supporting demand for the dollar and other safe-haven assets.
• Donald Trump is considering whether to accept a proposed 10-day ceasefire or expand military action against Iran.
• A broader escalation involving Tehran or Iranian nuclear facilities would intensify risk aversion and add further pressure on GBPUSD.
What comes next
Attention is now focused on the new UK cabinet, developments in the Middle East and this week’s British employment, inflation and retail sales reports.
• Bank of England guidance
• UK inflation and labour-market data
• Changes in the new government’s fiscal plans
• US-Iran developments
• Broader demand for the US dollar
Technical overview
GBPUSD has fallen by more than 1% over four consecutive sessions, breaking the upward trend in place since June 24. The pair has also moved below its 50-day, 100-day and 200-day moving averages.
The breakdown weakens the longer-term outlook for sterling. However, after the sharp decline, a short-term technical rebound remains possible before sellers attempt to regain control.
