GBP/USD Caught in Triangle as Tariff Shock and UK Politics Mute Breakout Hopes
The GBP/USD pair remains rangebound despite recent volatility, coiling just under 1.3680 resistance as global macro risks, UK political turmoil, and mixed labor data stall directional conviction. Sterling’s sharp rejection from the 1.3789 swing high has now formed a tightening symmetrical triangle, with the pair fluctuating between support at 1.3562 and the overhead cap at 1.3680. Price currently hovers near 1.3625, holding above the 50-day SMA at 1.3467 but unable to reclaim the weekly highs.
UK Bond Selloff Deepens as Reeves’ Fiscal Grip Tested
Gilts posted their sharpest selloff since October 2022, as Chancellor Rachel Reeves faced intra-party backlash and rising market doubts over fiscal stability. A £5 billion welfare rollback, prompted by rebellion from 50 Labour MPs, unraveled Starmer’s planned disability benefit overhaul, erasing projected savings through 2030. Political uncertainty further intensified as the Prime Minister hesitated to reaffirm Reeves’ position, triggering a sharp drop in GBP/USD to 1.3562 before a modest rebound. Despite Starmer’s late-stage clarification that Reeves will stay, investors remain skeptical, especially with potential tax hikes looming in the autumn budget.
Sterling Struggles to Sustain Bids Despite U.S. Labor Softness
While Friday’s NFP showed a 147,000 job gain vs. 110,000 forecast, soft wage growth at 0.2% helped prevent a dollar blowout. The U.S. unemployment rate dipped to 4.1%, while weekly jobless claims fell to a 6-week low of 233,000. Still, the data reinforced dollar strength, keeping DXY elevated at 96.93 and stalling any serious bullish move in GBP/USD. Treasury yields edged higher to 4.34% on the 10-year, yet Fed rate cut odds remained priced in for September. This left Cable capped under 1.3670, with every rebound faded quickly.
Bank of England Caught Between Tax Hikes and Growth Collapse
Markets now price two BoE rate cuts by year-end, but if Reeves is forced into tax hikes, that timeline may accelerate. Fiscal tightening would exacerbate recessionary risk, making it harder for the Bank to stay on hold at 4.25%. June’s 6–3 MPC vote hinted at a softening stance, and weak May GDP projections point to a continued contraction. The credibility dilemma is sharp—if the BoE cuts into fiscal hawkishness, inflation could reignite; if they hold, growth may buckle. Sterling remains a direct barometer of this policy collision.
Technical Gridlock: 1.3680 Ceilings and 1.3562 Floors Define Risk
Technically, GBP/USD trades just above 1.3625, inside a clean symmetrical triangle. The 50 EMA at 1.3664 and 200 EMA at 1.3656 are flattening, indicating exhaustion. RSI hovers near 50, and MACD shows no momentum advantage. A decisive breakout above 1.3680 is needed to target 1.3732 and 1.3789. On the downside, a close below 1.3562 opens the path toward the 78.6% Fib retracement zone at 1.3410–1.3460, with next key demand around the June low at 1.3371. Any move outside the triangle will define trend for the remainder of July.
Trump Tariff Threat Casts Long Shadow on FX Volatility
Donald Trump’s pledge to reintroduce tariffs, targeting 10 countries at a time with levies between 20% and 70%, has cast a fresh wave of uncertainty across the FX complex. Traders are watching the July 9 announcement closely, especially since GBP/USD is heavily correlated to risk sentiment and global capital flows. Sterling’s sensitivity to external trade policy is amplified by its reliance on favorable rate differentials, which are now narrowing fast. Unless tariff fallout is contained, foreign inflows to the UK may weaken, adding pressure to the pound.
GBP/EUR Slide Reflects Broader Sterling Fragility
The GBP/EUR cross hit a two-month low at €1.1602, down 0.9% from last week’s open, as weak UK data and government friction weighed on sentiment. A shock decline in real household disposable income erased optimism from recent GDP gains. ECB policy, meanwhile, remains in limbo: while inflation printed back within target in June, a slight uptick in unemployment dented euro strength. EUR gains were further tempered by dollar swings and U.S. trade policy headlines. Still, the euro remains more insulated than sterling, which is being battered by fiscal doubt and political disarray.
DXY Momentum Curbing GBP/USD Bullish Setups
The U.S. Dollar Index remains firm above 96.80, capped at 97.42, while the 200 EMA sits at 97.28. These levels are critical to monitor. A break below 96.10 would weaken dollar flows and allow GBP/USD a shot at clearing 1.37. Until that breakdown happens, the Cable will remain trapped inside the triangle formation and trade sideways with a bearish tilt.
Buy/Sell/Hold Verdict: Neutral HOLD – Pattern Coiling with Risk-On Catalyst Pending
The pair is technically and fundamentally coiled. The price pattern suggests indecision, and the macro backdrop confirms it. UK political fragility, tax hike risk, and Trump’s tariff shock create a compressed volatility environment for GBP/USD. A clean breakout above 1.3680 would flip sentiment bullish, targeting 1.3789 and 1.3835. A breach of 1.3562 will send it into 1.3410–1.3460 Fib territory. Until post-July 9 clarity on tariffs and Reeves' budget path, this is a HOLD.
