The week began with GBP/USD positioned at approximately 1.3660, indicating a sustained period of pound strength in contrast to a weaker USD. Initial trading remained stable, but by Tuesday, the pair ceased its gradual movement and began to surge rapidly. A surge of dollar selling impacted global foreign exchange markets, causing GBP/USD to rise sharply, with late-day trading pushing into the 1.3870 area and reaching four-year highs above 1.3850. The upward shift failed to withstand the test of actual conditions. Following the mid-week surge, sterling halted its ascent and spent the subsequent sessions fluctuating within a narrower range, primarily around 1.3770–1.3790 leading up to the Fed decision. By Friday, the situation reversed: the dollar experienced a significant recovery, precious metals faced declines following their record highs, and GBP/USD fell back to lows around 1.3725, losing approximately 125–150 pips from its peak. Despite that reversal, the pair continues to stay within the upper range of its medium-term framework. The current trading position remains within the price range last seen in late June to early July 2025, significantly above the 1.3400 level reached on 21 January. An institutional roadmap currently outlines a speculative range for the upcoming days between 1.35770 and 1.38110, effectively encompassing recent swing points and highlighting the rapid and forceful movement from 1.34 to 1.38. The primary factor influencing the recent movement in GBP/USD was not an unexpected release of UK data, but rather the developing narrative surrounding US monetary leadership. At the beginning of the week, the dollar faced significant pressure as market participants embraced the notion of a consistently accommodative Federal Reserve and a government that appeared at ease with a depreciating currency. The context contributed to the rise from approximately 1.3660 to the 1.3870 area.
The tone changed when news surfaced that President Trump intended to nominate Kevin Warsh (sometimes referred to as Marsh in market discussions) for the position of the next Fed Chair. Warsh aligns with a more aggressive approach compared to the prevailing market view, yet he is also regarded as a proponent of the Federal Reserve’s autonomy. The interplay is significant: his perceived reliability instills confidence in investors that decisions won’t be made solely from the Oval Office, even if he eventually endorses reduced rates in the long run. Multiple bank desks arrived at a similar conclusion: the nomination alleviates concerns about excessive political influence, which is favorable for the dollar in the near term, yet his capacity to influence the rest of the FOMC might heighten the chances of a future rate-cutting cycle. The observed paradox clarifies the decline of GBP/USD from levels exceeding 1.3850 to lows around 1.3725 on Friday. Analysts continue to caution that any rebound in the USD, influenced solely by the Fed’s leadership, may diminish as discussions regarding rate cuts come back into focus. This week’s movement in GBP/USD was influenced not only by macroeconomic headlines but also by a typical adjustment in positioning. The previous decline in the dollar had prompted strong short positions in USD across foreign exchange markets and increased long positions in commodities such as gold and silver. As GBP/USD climbed past 1.3850, speculative positions were heavily populated with dollar shorts that had been benefiting for several days. Once the Warsh story was released, that positioning turned into a disadvantage. Bank research pointed out that “no sensible market participant” was inclined to enter the weekend with significant short-USD exposure amid a potentially volatile geopolitical situation. The outcome was a significant decrease in exposure: traders realized gains on sterling longs, reduced their metals exposure following record highs, and repurchased USD. This is precisely the type of situation where figures such as 1.3710 become significant.
One prominent institution identified 1.3710 as a critical threshold: should GBP/USD fall significantly below this level, the upward movement that began last week will be deemed to have run its course. To date, the price has approached the low 1.37 level but has not established a consistent trading pattern beneath that threshold. The behavior of the spot around 1.3710 as the new week unfolds will indicate if this was simply a positioning flush or the beginning of a more significant retracement towards the lower end of the 1.35770–1.38110 range. From a technical perspective, GBP/USD is conveying a distinct signal: the trend is upward, yet the current risk-reward scenario for new long positions is weakening. On the weekly chart, the significant occurrence was the breach and closure above 1.3750, succeeded by prompt selling pressure that resulted in a shooting-star-style candle close to the highs. The observed pattern indicates an unsuccessful attempt to surpass resistance, signaling that buyers may not maintain complete dominance above that range. The initial significant resistance level is now positioned at the 1.3870 area, aligning with the recent peak and resting slightly above the 1.3850 four-year high. Any further examination of that zone will encounter sellers who are firmly positioned, having missed the opportunity to exit during the initial surge. A clear weekly close above 1.3870 would open the door to a potential move further into unexplored levels, yet the responsibility now lies with the bulls to demonstrate their strength.
The immediate reference point is the 1.3710–1.3725 range, as indicated by intraday lows and insights from banking commentary. A consistent breach below that area reinforces the argument for a shift towards 1.35770, the lower limit of the short-term anticipated range. In this context, the significant 1.3500 level acts as a focal point; it corresponds with previous resistance and is expected to draw in dip-buyers who overlooked the initial rise from 1.3400. Provided that 1.3500 remains intact, the overall framework continues to support sterling over the coming weeks, although the straightforward progression from 1.34 to above 1.38 has already occurred. Amidst the fluctuations of the week, the fundamental macro narrative continues to slightly favor GBP over USD, though it comes with a significant caution: as sterling appreciates, its vulnerability to global risk disturbances increases. Since the Brexit referendum, the pound has not completely returned to its pre-2016 levels, but recent weeks indicate it is showing strength against what many are now calling a weak dollar. The ascent to four-year peaks exceeding 1.3850 reflects that adjustment in valuation. On the UK side, the currency is being bolstered by a combination of elements: anticipations that the Bank of England will take a more gradual approach to rate cuts compared to the Fed, a decrease in immediate political turmoil relative to past years, and the view that the UK economy has largely weathered the impact of Brexit. The current trading of GBP/USD at levels reminiscent of mid-2025 supports the notion that the market is inclined to adjust the pound towards its fair value instead of categorizing it as a consistently high-risk asset.
In the United States, ongoing instances of political rhetoric, direct pressure on the Federal Reserve to reduce interest rates, and previous remarks from President Trump indicating minimal concern regarding the weakness of the USD have all impacted the currency negatively. The Warsh nomination narrative momentarily alleviates concerns by indicating a commitment to the autonomy of the Fed, yet it fails to eliminate the underlying challenges. If the markets determine that a Fed under Warsh’s leadership continues to favor an easing cycle, the present USD rebound may turn out to be short-lived. The risk for sterling lies in its growing dependence on overall market optimism. A significant equity downturn, an increase in volatility, or a rise in geopolitical tensions can swiftly redirect funds into the dollar and the yen. The recent shift from 1.3870 to the 1.37 range following a single headline illustrates the rapid unwinding of positions when the market narrative shifts. Considering the current price dynamics, evolving expectations from the Federal Reserve, and ongoing supportive factors for the pound, GBP/USD is at a critical juncture. The pair has experienced a notable ascent from 1.3400 on 21 January to peaks exceeding 1.3850 in just over a week, as sentiment in metals and other dollar-sensitive assets has shifted from euphoria to panic. This level of volatility suggests that pursuing gains in the face of resistance may not be prudent.
Simultaneously, the structural environment has not shifted clearly in support of the USD. The Warsh nomination could explain the shift from 1.3870 back towards 1.3725, and potentially a decline towards the 1.35770–1.3710 range, but it does not inherently establish a sustainable upward trend for the dollar if expectations for rate cuts later in the year persist. Provided that 1.3500 remains intact, the medium-term framework continues to support the outlook for sterling against the dollar over the coming months. Considering all factors, the position on GBP/USD is: conclusion – MAINTAIN, with a strategic optimistic outlook on pullbacks. At present levels close to the upper boundary of the 1.35770–1.38110 range and slightly beneath resistance at 1.3870, the pair does not present a compelling opportunity for new long positions. A more thorough pullback to the 1.35770–1.3500 range would present a more logical opportunity to reconsider purchasing GBP versus USD, whereas a consistent drop below 1.3500 would necessitate a reevaluation of that optimistic perspective.