GBP/USD Dips Below 1.3640 as UK Political Risk, US Labor Data Shake Market

GBP/USD Crashes Below 1.3640 as Political Chaos and U.S. Labor Surprise Collide

UK Political Fallout Triggers Market Panic

The British Pound collapsed below the 1.3640 barrier as escalating political instability rocked investor confidence. Prime Minister Keir Starmer’s unwillingness to back Chancellor Rachel Reeves’ continuity triggered massive gilt liquidations, with yields spiking and Sterling plunging nearly 1% intraday. The welfare policy U-turn shredded the foundation of Reeves’ fiscal narrative, costing the UK £21 billion in bond market value. GBP/USD traded near 1.3625 as of July 3, reflecting a full unwind of the prior week's rally.

U.S. Labor Data Rescues the Dollar From Collapse

In stark contrast to the UK turmoil, the U.S. dollar caught a tailwind from a shockingly strong June NFP report. Non-Farm Payrolls rose by 244,000—smashing expectations—while unemployment fell to 3.5% and wages climbed 0.4% MoM. This data sparked a sharp reversal in the U.S. Dollar Index and crushed near-term hopes for a Fed rate cut, sending GBP/USD deeper into retreat.

British Bonds Implode as Fiscal Trust Erodes

Markets punished UK assets after the government walked back welfare reforms that were key to its savings plan. Gilt markets saw their worst session in four months, accelerating concerns that Reeves might be ousted. The fallout dragged GBP/USD to 1.3601, placing bulls on the defensive. With no macro offset, political headlines dominate Sterling’s direction.

Technical Picture Signals Breakdown Toward 1.3400

Momentum flipped bearish after GBP/USD breached the 30-SMA on the 4H chart. RSI fell to 46 and MACD crossed below zero. A failed retest of the 1.3660 level cemented bearish control. If price breaks and holds under 1.3601, the next target sits at 1.3400. Volume patterns confirm bearish accumulation as down days outpace up moves.

Elliott Wave Structure Still Intact—but Faces Bearish Test

Wave theory still allows for a broader bullish structure, with the pair possibly in Gray Wave 3 of Orange Wave 5. But this remains academic unless 1.3750 is reclaimed. Traders are watching the 1.3593–1.3617 zone closely to see if it marks a higher low for reversal—or a breakdown catalyst.

Macro Watch: ISM in U.S. vs. PMI in UK

The ISM Services PMI hit 50.8—slightly bullish—but showed cracks with the employment component falling to 47.2. In the UK, final Services PMI is projected to tick up from 50.9 to 51.3. If the UK data confirms, GBP could gain short-term traction, but risks remain asymmetric.

GBP/USD Clings to 1.3600 as Final Line of Defense

The 1.3600 level is the technical pivot. A breakdown opens the door to 1.3400, while reclaiming 1.3750 would flip sentiment. Current market bias favors a bearish continuation as institutional flows shift to USD. Confidence in UK leadership and fiscal planning must return before bulls regain control.

BUY/SELL/HOLD VERDICT: SHORT-TERM SELL — MID-TERM HOLD

With no resolution to UK political stress and U.S. macro data firming, GBP/USD remains a short-term sell. Technicals validate bearish continuation toward 1.3400. Medium-term bias neutralizes only if the 1.3600 support holds and buyers reclaim momentum.

Rating: SELL (Short-Term) Target: 1.3400 Support Bias: HOLD (Mid-Term) if 1.3601 zone holds Symbol: GBP/USD

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