07/10/25

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The GBP/USD currency pair experienced downward pressure on Tuesday as the US dollar regained strength amid a mix of domestic economic uncertainties and global geopolitical developments. The pair declined to levels below the mid-1.3400s, nearing the overnight swing low, during the European trading session. The dollar’s strength was primarily driven by a rebound after a recent pullback from late September highs, as investors reassessed their risk appetite and geopolitical risks surrounding the Eurozone and Japan.

In Japan, an unexpected outcome from the leadership contest has increased expectations for expansionary fiscal policies, dampening the appeal of the Japanese Yen. Meanwhile, political uncertainties in France, highlighted by the resignation of Prime Minister Sebastian Lecornu under pressure from coalition partners and opposition, added to sentiment shifts, strengthening the US dollar against the euro. These geopolitical factors, combined with the US dollar’s own momentum, created a generally supportive environment for the greenback.

However, prospects for a significant USD rally remain limited due to ongoing uncertainties surrounding the US government shutdown. Now in its sixth day, the shutdown hampers the release of key economic data, including the highly anticipated Nonfarm Payrolls figures. With negotiations in Congress deadlocked over spending bills, market participants are closely watching speeches from Federal Reserve officials to gauge future monetary policy directions. The upcoming release of FOMC minutes and Fed Chair Jerome Powell’s public appearances are expected to influence market sentiment on whether interest rate cuts are forthcoming.

Meanwhile, market forecasts point towards continued near-term divergence in monetary policy expectations. The likelihood of a US interest rate cut in October and December remains high, which limits the dollar’s upside potential. Conversely, expectations that the Bank of England will maintain rates at 4% due to persistent inflationary pressures provide some support for the pound, helping to restrain losses in the GBP/USD pair.

Technical analysis indicates that the pair is consolidating within a range, forming a rectangle pattern with significant support around 1.3420 and resistance near 1.3485. A break below support could lead to a test of near two-month lows around 1.3325, potentially accelerating a broader corrective decline. Conversely, a decisive move above resistance might trigger a short-term rally toward 1.3565 and possibly beyond, possibly retesting the recent high around 1.3725. As the market remains in a state of indecision, traders are closely monitoring upcoming macroeconomic releases and Federal Reserve cues to confirm the next directional move.