The new prime minister, Andy Burnham, has shown a tendency to change his position frequently, in stark contrast to his predecessor, Keir Starmer, who maintained a much more cautious public stance. This shift in political uncertainty could create additional pressure on the GBP/USD pair. Let’s examine the situation and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- Profit-taking triggered a pullback in GBP/USD quotes.
- Monetary policy is not supporting the pound as much as it used to.
- The Fed and the Bank of England are moving at the same pace.
- It is better to refrain from opening new long positions on the GBP/USD pair.
Weekly Fundamental Forecast for Pound Sterling
Being too quiet can be a problem, but being too outspoken can be one as well. Markets have been unsettled by Kevin Warsh’s brief communication style, which has only added to uncertainty. However, the decline in GBP/USD quotes following shifts in the stance of the UK’s new Prime Minister, Andy Burnham, reflects investor frustration with changing policy signals. The government initially proposed raising the income tax threshold, then abandoned the idea, only to revisit it later. This contrasts sharply with Keir Starmer, who was widely known for maintaining a more reserved public profile.
Ultimately, the broader context is what matters most. The GBP/USD pair’s rally was fueled by expectations that political uncertainty in the UK would ease following the leadership change. Investors anticipated that capital previously withdrawn from the country would return and that the risk premium on UK assets would decline. These expectations were reinforced by Andy Burnham’s repeated commitments to maintaining established fiscal rules. However, growing doubts over whether the UK government will remain committed to fiscal consolidation have unsettled markets. Frequent shifts in policy messaging have increased uncertainty, contributing to bond sell-offs and pushing government bond yields higher.
UK 30-Year Bond Yield
Source: Bloomberg.
The new prime minister’s ambiguous comments have done little to restore market confidence. For instance, Andy Burnham’s statement that the government would seek greater flexibility while still respecting borrowing and spending rules was interpreted by investors as a possible shift away from fiscal discipline, putting additional pressure on the GBP/USD. After an extended rally, traders began taking profits on long positions, triggering a correction in the pair. Weaker inflation data further intensified the pressure.
In June, consumer price growth slowed from 2.8% to 2.6%, falling below market expectations. UK inflation is now lower than in both the US and the eurozone, having previously been above both for an extended period. On paper, this could encourage a slower pace of monetary policy tightening by the Bank of England, creating additional headwinds for the pound.
UK Inflation
Source: Bloomberg.
In practice, money market expectations regarding the future path of the policy rate have remained unchanged. Investors currently estimate a 56% probability of two rate hikes in 2026, a level broadly comparable with expectations for the Fed. As a result, neither the pound nor the US dollar currently holds a clear monetary policy advantage. The renewed escalation of tensions in the Middle East and expectations that June’s inflation readings in both the UK and US may mark the bottom suggest that price pressures could rise again in the near term, particularly amid a recovery in Brent crude prices.
Monetary policy has not provided the pound with the support that many investors had anticipated. If Andy Burnham continues to shift his position frequently and create policy uncertainty, a sustained return of capital to the UK is unlikely.
Weekly Trading Plan for GBP/USD
The GBP/USD pair has reached the bullish target of 1.355, but the prolonged pullback raises concerns about opening new positions. The pair is likely to remain in a consolidation phase ahead of the upcoming Fed and BoE meetings. So, it is better to refrain from opening trades now.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
