Paul Spirgel

Sterling may remain under pressure in the near-term as a volatile cocktail of domestic political instability and surging UK, and global, inflationary and growth pressures weigh on the currency's outlook.

Sterling is expected to remain under pressure, reacting to headline-driven volatility in the near-term as markets balance technical support levels against a fracturing UK political landscape and Middle East peace ructions.

Sterling continued its descent on Friday and is likely to remain under pressure in the coming weeks as intensifying UK political instability and fiscal concerns clash with a more austere global inflation backdrop, particularly in the U.S.. Cable hit a fresh five-week low of 1.3329 during European trading. The currency is reeling from heightened domestic uncertainty following a bevy of high-profile Labour resignations from Prime Minister Keir Starmer’s government, including Health Minister Wes Streeting. Compounding sterling's woes is the resurgence of U.S. dollar strength. Recent above-forecast U.S. CPI and PPI data, coupled with climbing oil prices, have solidified a persistent inflation outlook. This shift has bolstered expectations for a Federal Reserve rate hike in Q4, fundamentally altering the relative global rate path. While the U.S. inflation spike may foreshadow similar pressures in the UK—raising BoE hike expectations for H2 2026—the immediate focus remains on narrowing Fed-BoE policy expectations.

Sterling is expected to face continued near-term volatility as macro anxieties limit the upside of Monday's technical rebound. The currency managed a lofty bounce off its Asia session low of 1.3304, a floor established amid heightened U.S.-Iran conflict tensions. This corrective move higher has lifted GBP/USD back within the daily Bollinger envelope and the daily Ichimoku cloud, which currently spans 1.3487–1.3339.

Sterling is likely to remain tipped to the downside, sledding around its recent 1.3304-1.3450 range in the near term, as a convergence of cooling domestic inflation, fiscal anxiety, and political instability limits upside potential.

Expect continued volatility for sterling in the near-term, with risks tipped to the downside, as global geopolitical tensions and domestic policy adjustments create a complex backdrop. The pound experienced slight weakness today, trading down at 1.3414 after comments out of Iran revealed the Supreme Leader is refusing to hand over the nation's enriched uranium supply. This refusal has exerted broad downward pressure on risk assets, pulling GBP/USD lower from an open of 1.3440. However, Iran is not the only issue weighing on the currency pair. As a by-product of the Middle East conflict and its deleterious effects on inflation and global growth, UK Finance Minister Rachel Reeves announced measures to lower costs for consumers, including reduced sales taxes on summer expenses and a suspension of food import tariffs. While these actions are unlikely to derail the budget, they keep the spotlight on UK fiscal vulnerabilities despite a slight reduction in UK 10-year gilt yields below 5%, particularly given the fluid political situation.

• $CAD slow drift higher continues, +0.15% at 1.3834; Wednesday range 1.3839-1.3804

• GBP$ soft in NorAm afternoon trade, -0.15% at 1.3425; NorAm range 1.3459-1.3417

The near-term outlook for sterling suggests continued volatility, with several factors poised to influence its trajectory, including relative U.S.-UK inflation expectations, the lingering Middle East conflict and UK political uncertainties.

Sterling is likely to remain confined to near-term ranges as repeated failures by bears to sustain momentum below the psychological 1.3400 threshold and bulls' inability to take out resistance above 1.35, leave the currency lacking a clear directional catalyst. The pound edged slightly lower following less-hawkish commentary from Bank of England Governor Andrew Bailey, who signaled that policymakers feel no immediate urgency to raise interest rates. Tempering an otherwise