GBP/USD concluded Friday at 1.3483, having dipped to daily lows around 1.3450 during the afternoon session — effectively reversing the entire mid-week rally that had momentarily reached 1.3575, driven by Nvidia’s earnings-driven equity surge. The pound currently finds itself influenced by three converging factors that exert similar pressure: a Monday gap driven by developments in Iran, which is likely to bolster the dollar due to increased safe-haven demand; a Bank of England rate cut anticipated in March, which is being priced in with significant certainty; and a domestic political upheaval stemming from the Gorton and Denton by-election, which has seriously shaken confidence in the Starmer administration. The descending trendline established from the January peak at 1.3700 has consistently turned away every rally attempt observed this month. The 20-day EMA at 1.3550 serves as a formidable barrier. The FTSE 100 has reached an all-time high, while sterling remains indifferent — this is due to the index being heavily influenced by dollar-generating multinationals that gain from a depreciated pound. UBS has established a short-term fair value estimate of 1.33, significantly lower than the existing price. The Elliott Wave pivot at 1.3338 represents a critical juncture for the viability of the structural bull case. Subsequently, the path leads to 1.3170 and ultimately to 1.3000. The sole factor hindering an imminent collapse is the dollar’s own challenges — the resistance at 97.94 in the DXY’s ascending triangle has not been breached, despite five attempts over seven sessions. If Iran breaches that resistance level on the dollar Monday, GBP/USD will experience a significant decline.
The Greens’ triumph in the Gorton and Denton by-election impacted GBP/USD more significantly than any economic data announcement this week. The recent loss of a traditionally secure seat by Labour has sparked renewed scrutiny regarding Prime Minister Starmer’s authority, the party’s capacity to uphold its coalition, and the overarching direction of fiscal policy in the UK. The political instability surrounding the pound is more than mere headline noise; it has a direct impact on gilt yields, expectations regarding Bank of England policy, and the influx of foreign capital into assets denominated in sterling. The correlation between increasing equity values and a strengthening pound has faltered: the FTSE 100 can reach record highs without bolstering sterling, as the equity surge is propelled by multinational profits denominated in dollars, whereas the pound’s performance hinges on domestic political stability — and that stability has recently faced a significant setback. The currency’s failure to capitalize on the most robust global equity environment seen in months is a signal that warrants scrutiny. When favorable macro conditions fail to elevate prices, it indicates that the opposing forces are more formidable than they may seem at first glance. The by-election result surpassed the most pessimistic forecasts, and the consequences reach further than mere sentiment — the uncertainty surrounding fiscal policy increases the risk premium on UK assets. This context renders the gilt market’s rally, with yields declining to 4.32% on the 10-year, the lowest level in 15 months, less of a positive indicator and more indicative of a flight to safety within the domestic fixed income market. The activity of foreign holders purchasing gilts while hedging their sterling exposure establishes a negative correlation between gilt prices and the exchange rate, which is prevalent in the current market landscape.
UK Defence Secretary John Healey stated that British military personnel stationed at a base in Bahrain were “within several hundred yards” of an Iranian strike — positioning the conflict in close proximity to British forces in a manner that no other NATO ally, aside from the United States, has encountered. British Airways and Virgin Atlantic have suspended all operations to the Middle East. The operational exposure of UK assets in the Gulf introduces a risk premium specific to sterling, layering it over the overarching dynamics of the dollar as a safe haven. S&P 500 futures have decreased by 0.43%, while the Nasdaq has fallen by 0.92%. The Strait of Hormuz is currently experiencing a significant closure, with over 150 tankers now anchored in the area. Brent crude OTC trades reflect a price of $80, marking a 10% increase since Friday. In 2025, the UK sourced around 40% of its natural gas through LNG imports, while the Strait of Hormuz accounted for 23% of the global LNG trade. A prolonged disruption poses a direct threat to UK energy prices, exacerbates inflationary pressures, and complicates the Bank of England’s challenging decision-making process regarding whether to lower rates to stimulate growth or maintain rates to combat inflation driven by energy costs. In the case of GBP/USD, the situation regarding Iran presents a dual challenge: it bolsters the dollar due to increased safe-haven demand, while concurrently undermining the pound due to its susceptibility to energy imports and the physical exposure of UK military resources.
The London FTSE 100, having reached a record high on Friday and nearing the 11,000 mark for the first time, is projected to decline by about 0.5% on Monday morning. Gold has increased by 2.25%, approaching $5,400 in IG’s weekend markets. Silver has experienced an increase of 3.2% in its trading value. The shift towards hard assets and the dollar is likely to exert downward pressure on cable, pushing it toward the 1.3400 level at Monday’s open — and possibly beyond if equity selling escalates. The Bank of England is approaching a rate cut at the March meeting, with the market assigning a strong probability to this outcome. The recent speech by BoE Chief Economist Huw Pill was analyzed in detail for any signs of opposition to prevailing expectations — and the lack of strong counterarguments reinforced the dovish stance. The latest labor data from the UK has shown weakness significant enough to prompt a notable decline in the pound, highlighting the broader consensus that the UK economy is functioning below its potential. Governor Bailey’s comments have taken a dovish stance, and the internal dynamics of the monetary policy committee indicate a majority now supports lower rates. Meanwhile, the Federal Reserve remains at 4.75% with no immediate plans to reduce rates. CME FedWatch shows 97.9% probability of unchanged rates through April. Core PPI has just been reported at 0.8% for the month, significantly exceeding the consensus estimate of 0.3%. The annual core PPI is now at 3.6%. The bond market exhibited a paradoxical response: the 10-year Treasury yield dipped below 4% to 3.978% for the first time since November, not due to a decline in inflation expectations, but rather because the market is assessing recession risk as more significant than inflation risk. The dollar failed to gain traction despite the strong PPI, as concerns over growth deterioration overshadowed inflation worries in the bond market.
The interest rate differential serves as the mechanism by which the expectations of the Bank of England influence the price action of GBP/USD. With the Fed at 4.75% and the BoE making cuts, each reduction by the BoE increases the advantage for the dollar. Capital tends to move towards currencies that are experiencing stable or increasing rates, while it shifts away from those where rates are declining. Sterling is clearly positioned unfavorably in that equation as we approach March. The ECB finds itself in a comparable situation, nearing the conclusion of its easing phase, albeit trailing the Fed. However, this scenario is somewhat mitigated by the eurozone’s robust current account position. The UK does not have any such offset. The pound experiences the complete impact of the rate differential. The Dollar Index has been consolidating over the past week within an ascending triangle, facing resistance at 97.94. This level corresponds to a Fibonacci point that previously established lows last April, served as support in October and December, and has maintained the highs in five of the last seven sessions. The support level between 97.33 and 97.46 has consistently held during each pullback, establishing the higher-low structure characteristic of the ascending triangle formation. The pattern suggests a bullish breakout; however, the resistance has proven to be quite persistent. The longer the consolidation persists without a clear resolution, the higher the risk that the formation may fail, potentially leading the dollar to decline toward the 96.80–97.00 range. Iran alters the equation. The demand for the dollar as a safe haven on Monday may serve as the driving force that five consecutive sessions of natural buying failed to achieve. If DXY surpasses 97.94 on the Iran gap, the breakout targets will initially be 98.50–99.00 — a movement that would significantly impact GBP/USD, pushing it through the 1.3434 support level and towards the 1.3338 Elliott Wave pivot. On the other hand, should the DXY not manage to align with the Iran catalyst — if the ascending triangle resistance remains intact for a sixth and seventh time — the potential for a bearish reversal in the dollar escalates significantly, allowing GBP/USD to recover towards the 1.3550–1.3600 range.
The CFTC data offers valuable insights into positioning dynamics. The net long positions in EUR have decreased from €174.5K to €156.9K — a significant decline indicating that some speculative long positions in the euro are being reduced, thereby providing indirect support for the dollar. AUD net longs rose from $45.9K to $52.6K. JPY net longs decreased from ¥13.0K to ¥11.5K. Oil net longs increased from 141.3K to 172.7K — indicating the market’s alignment for the anticipated Iran-driven crude spike that occurred on Saturday. The current positioning scenario is favorable for the dollar overall, as speculative capital shifts towards the greenback alongside energy commodities. The GBP/USD chart is characterized by two competing technical patterns. On the daily timeframe, a falling wedge has developed — characterized by two descending, converging trendlines that typically culminate in a bullish breakout. This pattern is also evident in EUR/USD, and from a technical standpoint, the structure presents an opportunity for bulls to initiate a reversal. The Fibonacci support at 1.3434 (the February 19 low) remains intact, and the sequence of higher lows forming the lower boundary of the wedge is preserved as long as 1.3434 holds on a closing basis.
However, the bearish outlook is more pronounced. The descending trendline from the January 1.3700 high has effectively limited each rally attempt. The mid-week surge to 1.3575 was met with rejection at this trendline, resulting in a significant decline back to 1.3450, with notable upper wicks indicating strong seller presence on every bounce. The 50-EMA positioned at 1.3510 on the two-hour chart serves as a key resistance level. The 200-EMA positioned at 1.3560 serves to strengthen the upper boundary. The 20-day EMA at 1.3550 on the daily chart serves as the critical threshold that cable has struggled to surpass — it delineates the boundary between bearish and neutral conditions. The RSI across both timeframes remains within the range of 40–48, indicating a diminishing momentum that skews negative, yet it has not dipped into oversold territory that would typically prompt a counter-trend bounce. The resistance map indicates: 1.3510 (50-EMA) → 1.3525–1.3530 (minor) → 1.3550 (20-day EMA, the ceiling) → 1.3560 (200-EMA) → 1.3575 (this week’s high) → 1.3585 → 1.3605 (major resistance) → 1.3680 → 1.3700 (trendline origin) → 1.3830 (January high). Support levels are as follows: 1.3450, which corresponds to Friday’s lows, followed by 1.3434, the exact low from February 19. Further support can be found at 1.3408, then 1.3360, and 1.3338, identified as the Elliott Wave pivot. The next target for a breakdown according to Elliott Wave analysis is 1.3170, with a significant level at 1.3000.