During the Asian trading session on Friday, overall market movement was limited. The GBP/USD pair traded within a narrow range around the 1.3425 to 1.3430 zone. Although the pound is still on track for a modest weekly gain, the strength of the U.S. dollar and domestic uncertainties in the UK continue to cap its recovery potential.
Recent market views on the future policy path of the Bank of England have diverged significantly. External Monetary Policy Committee member Swati Dhingra suggested that if rising energy prices lead to only limited second-round inflation effects, the BoE might not need to raise interest rates further. However, another committee member, Catherine Mann, warned that the risk of high inflation persisting until late 2026 could become embedded in wage agreements for 2027, potentially leading to prolonged inflationary pressures. This clear internal disagreement within the BoE on the direction of future interest rates has left markets uncertain about the UK's monetary policy outlook. This policy uncertainty has contributed to a lack of sustained upward momentum for the pound in the short term. Simultaneously, BoE Governor Andrew Bailey noted that since the outbreak of the Middle East conflict, rising market interest rates have effectively given the central bank more time to assess the war's impact on the economy. Markets interpret this as a signal that the BoE may maintain a wait-and-see stance in the near term. Despite this, market expectations still include at least one potential rate hike by the BoE in 2026. With energy prices remaining elevated, inflation risks in the UK have not fully subsided.
Beyond monetary policy, domestic political risks in the UK are also keeping markets cautious. Current Prime Minister Keir Starmer faces significant leadership pressure, raising concerns that political stability could decline, potentially affecting the implementation of future fiscal and economic policies. This political uncertainty is dampening market risk appetite for pound-denominated assets. Particularly against the backdrop of a generally strong U.S. dollar, capital is more inclined to flow towards higher-yielding, more liquid dollar assets.
On the other hand, hawkish expectations from the United States continue to support the dollar. The minutes from the Federal Reserve's April meeting revealed that most officials believe further policy tightening may be necessary if inflation persists above the 2% target. Markets have already adjusted their expectations for the Fed's policy path accordingly. Traders now estimate the probability of an additional Fed rate hike this year has risen to around 60%. This shift has kept U.S. Treasury yields elevated and helped push the dollar index near a six-week high. Furthermore, the complex situation in the Middle East continues to reinforce the dollar's safe-haven appeal. While there is some hope for easing tensions between the U.S. and Iran, significant disagreements remain over uranium enrichment and control of the Strait of Hormuz. As the strait handles about 20% of global seaborne crude oil shipments, markets remain highly sensitive to risks in the region. Geopolitical uncertainty not only pushes energy prices higher but also increases demand for the dollar as a safe haven.
From a market sentiment perspective, GBP/USD has entered a phase of consolidation at higher levels. Concerns about UK economic and political risks, combined with pressure from a strong dollar, have made bullish investors notably cautious. On the daily chart, the pair has repeatedly tested resistance near the 100-day Exponential Moving Average (EMA) but has failed to achieve a decisive breakout, indicating persistent selling pressure above. While the pair remains within a medium-to-long-term ascending channel, short-term upward momentum has clearly slowed. The daily MACD indicator is showing early signs of a bearish crossover, with the red momentum bars contracting, suggesting the prior uptrend is weakening. The RSI indicator has retreated from overbought territory to around 55, indicating a cooling of bullish momentum, though the structure has not turned fully bearish. Key support below is located around 1.3380. A break below this level could lead to further tests of 1.3320 and 1.3260. Resistance above is concentrated around 1.3450 and the 100-day EMA at 1.3480. A clear break above this zone could see the market retest the 1.3520 to 1.3550 range.
It is noteworthy that a small converging triangle pattern has formed on the 4-hour chart, suggesting the market may be approaching a directional breakout. If the dollar continues to strengthen and UK political and economic pressures intensify, GBP/USD could break below its consolidation range. Conversely, if the BoE subsequently signals a more hawkish stance on rate hikes, it could propel the pair upwards to retest the 1.3500 area. Overall, the daily trend for GBP/USD remains neutral-to-bullish, but the 4-hour cycle has entered a consolidation phase as the market awaits new macroeconomic drivers.
The core logic driving the current GBP/USD movement revolves around "U.S. dollar strength" and "UK internal uncertainty." Hawkish Fed expectations, elevated U.S. Treasury yields, and persistent safe-haven demand support the dollar, while BoE policy divergence and political risks limit the pound's rebound potential. From a technical perspective, the daily trend has not fully weakened, but short-term charts show clear signs of high-level consolidation. Future market focus will center on UK economic data, the direction of Fed policy, and developments in the Middle East situation. If the dollar maintains its strength, GBP/USD could test key support levels below in the near term.
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