GBP/USD Forecast: Sterling Hits 6-Week Low at 1.3327 as UK Political Crisis and Hawkish Fed Sink the Pound

The ruling Labour Party suffered a defeat in local elections, after which more than 90 of its MPs called on Prime Minister Keir Starmer to resign — a demand he has refused. The most likely candidates to challenge his leadership are currently considered to be Wes Streeting, who stepped down as Health Secretary, and Manchester Mayor Andy Burnham. Burnham had previously been ineligible to stand as Prime Minister due to not being a sitting MP, but the resignation of Makerfield MP Josh Simons opens the door for Burnham to contest the resulting by-election — a path that could significantly increase his chances of becoming the next British Prime Minister. Investors believe any incoming government would struggle to maintain fiscal discipline, likely driving higher public spending, increased borrowing, and a growing debt burden. Against this backdrop, the yield on 10-year UK gilts has surged to its highest level since July 2008, reaching 5.137%, while sterling continues to weaken.

The US dollar is drawing support from growing expectations of a shift toward hawkish Fed rhetoric. In April, the Consumer Price Index rose from 3.3% to a three-year high of 3.8% year-on-year, beating the 3.7% forecast, while the core reading climbed from 2.6% to 2.8% against an expected 2.7%. The Producer Price Index accelerated from 4.3% to 6.0% and from 4.0% to 5.2% on the core measure respectively. The labor market remains resilient, as confirmed by the latest weekly data: initial jobless claims rose to 211,000, exceeding both the 205,000 forecast and the prior reading of 199,000, yet the total number of Americans receiving unemployment benefits came in at 1.782 million — below the expected 1.790 million. Taken together, these figures significantly increase the probability that the Fed will hold rates unchanged through year-end, while leaving the door open to a hike in the medium term.

Support and Resistance Levels

The pair is testing the 1.3366 level (Murray [3/8]): a confirmed close below it would open the way toward 1.3244 (Murray [1/8]) and 1.3183 (Murray [0/8]), while consolidation above the Bollinger Bands middle line at 1.3525 would support a continuation of the uptrend toward 1.3671 (Murray [8/8]) and 1.3793 (Murray [+2/8]).

Technical indicators support further downside: the Bollinger Bands are turning lower, the MACD histogram is preparing to cross into negative territory and generate a sell signal, though a move below the lower Bollinger Band and the Stochastic reaching oversold territory leave room for a limited corrective bounce.

Resistance levels: 1.3525, 1.3671, 1.3793.

Support levels: 1.3366, 1.3244, 1.3183.

GBP/USD Trading Scenarios and Price Forecast

Short positions can be opened below 1.3366, targeting 1.3244 and 1.3183, with a stop-loss at 1.3440. Time horizon: 5–7 days.

Long positions can be opened above 1.3525, targeting 1.3671 and 1.3793, with a stop-loss at 1.3460.