July 2026

Since Prime Minister Keir Stramer’s resignation in late June, the Pound has maintained an upward trajectory. Investors are optimistic that Andrew Burnham, widely regarded as the frontrunner to succeed him, will adhere to chancellor Reeves’ fiscal framework.

Sterling’s recent strength has not been driven by domestic fundamentals. Gilt weakness — 10-year yields up 21bps and 30-year up 20bps month-to-date — appears global in nature, with oil prices the key driver of the gilt-Treasury spread rather than UK-specific risk premia.

UK inflation slowed more than expected in June, pressuring the pound, though markets remain cautious about the improvement. Much of the decline stemmed from lower fuel costs, while oil has since rebounded and household energy bills are rising, potentially reigniting inflation later this year without supporting growth. The softer CPI print reduces the case for near-term Bank of England tightening, while concerns over weak growth, higher energy costs and household spending persist. Meanwhile the USD remains firm, supported by US rate expectations and demand for defensive assets, leaving GBPUSD vulnerable to further downside. A break below 1.3350 could open the path to 1.3300, with the broader 1.3200-1.3250 zone back in focus.

At its July meeting, The Bank of England held the policy rate steady at 3.75%, in line with expectations. By pushing back against speculation of a pre-emptive hike, policymakers signalled comfort in waiting for more definitive evidence of inflationary spillovers before tightening further. The pound weakened as investors scaled back near-term rate hike bets. 

June 2026

 

The pound fell to a two-month low against the USD, hovering near $1.33, after the Bank of England left the rates at 3.75% unchanged as expected. Sterling failed to gain traction amid a resurgent USD, driven by the Federal Reserve’s hawkish stance and signals of possible rate hikes. Even with a more hawkish vote split in the BOE decision, the currency could not withstand the strength of the USD.

 

If the Federal Reserve raises interest rates this year, while the Bank of England holds steady, the resulting policy divergence would weaken GBPUSD and intensify inflationary pressure in the UK. In this scenario, the BOE’s most prudent approach would be to strike a hawkish tone, keeping the option of a rate hike open—even if implementing one is not immediately necessary. 

 

May 2026

 

Pound fell to 1.3424 against USD dragged down by the weaker-than-expected retail sales data as consumers battled with elevated prices. Consumers curtailed fuel purchases and discretionary spending as surging energy costs and uncertainty stemming from the conflict in Iran weighed on consumer sentiment. GBP weakened following a political crisis in the UK, with the Prime Minister Keir Starmer under pressure to resign after Labor party suffered significant losses in the local elections. Sterling is expected to remain under strain until greater clarity emerges regarding the next prime minister and the policy direction of any successor. Conversely, a de-escalation in the Middle East would likely soften the USD against the GBP. 

 

April 2026

 

GBP was supported although the expectations for further policy tightening is a little overstated. With no major economic data releases due, currency markets are expected to remain driven by geopolitical developments and their impact on energy prices, broader risk appetite and central bank expectations.