Key Takeaways:
GBP/USD struck a fresh 2026 low last week as expectations of tighter US monetary policy and a broad flight into the greenback overwhelmed Sterling's resilience.
The pound dropped to $1.3145, its weakest level this year, before recovering to trade around $1.3220. The dollar index extended its multi-month rally after the Federal Reserve's hawkish June policy meeting, with traders pricing in a greater than 68 percent chance of a rate hike by September, according to CME FedWatch data.
"The Fed's hawkish repricing has been the dominant driver of dollar strength, and there's little on the horizon to reverse it," said Sarah Lin, markets analyst at Edgen.
The dollar's advance was amplified by a sharp selloff in global technology stocks amid growing concerns over AI valuations, with the resulting risk-off flows pushing the greenback to new highs against most major peers. The euro slid to $1.1385, while the yen weakened past 161.7 per dollar. Gold fell 0.7 percent to $4,061 an ounce, heading for a fourth consecutive monthly loss.
Sterling showed surprising resilience despite domestic political upheaval. Prime Minister Keir Starmer's resignation triggered a leadership contest, with Andy Burnham emerging as the likely successor. Rather than sparking a selloff, the transition was largely priced in, with investors betting Burnham will maintain existing fiscal rules. That confidence helped keep UK gilt yields in check, providing the pound with a modest tailwind.
The pound also shrugged off weaker-than-expected preliminary PMI data. Business surveys showed activity across the UK's private sector remained in contraction territory, but the disappointing figures were overshadowed by the improving backdrop in UK bond markets and reduced uncertainty over fiscal policy direction.
Payrolls Data to Test Dollar's Momentum
The next test for the pair comes Friday with the US non-farm payrolls report. Consensus estimates point to a marked slowdown in hiring after May's stronger-than-expected print. A reading below the 175,000 consensus could temper rate-hike expectations and offer the pound some relief, while another upside surprise risks pushing GBP/USD below the $1.3145 floor.
Recent payroll reports have consistently beaten forecasts, however, and another upside surprise would reinforce the hawkish Fed narrative and extend dollar gains. On the UK side, investors are watching for any hints on who Burnham might appoint as chancellor. A pick seen favoring increased borrowing to fund spending could push gilt yields higher, creating a headwind for sterling.
This article is for informational purposes only and does not constitute investment advice.
