The Pound Sterling (GBP) has recovered to around 1.2800 against the US Dollar (USD), bouncing back from a monthly low of 1.2707. The US Dollar Index (DXY) has fallen to near 103.00, contributing to the GBP’s strength after a brief recovery by the USD.
Currently, GBP is down 0.2% against the USD. UK Prime Minister Starmer’s plans include domestic regulation reforms and tax breaks to address trade tensions caused by US tariffs. Market expectations indicate a full 25 basis point cut for the Bank of England’s May 8 meeting.
Market Outlook And Expectations
Analysts suggest GBP may decline to 1.2675 before stabilising, and any further drop is not expected to reach 1.2580. Recent fluctuations show GBP closing lower by 1.41% at 1.2724, though it is considered oversold. Resistance points are noted at 1.2820 and 1.2870, with further declines suggesting pressure may ease soon.
What we’ve been seeing over the past several sessions is a firm push back above 1.2800 for the British Pound—something perhaps owed as much to weakness in the Dollar as it is strength in Sterling fundamentals. The slip in the Dollar Index to around 103.00 has taken some pressure off the Pound’s attempts to claw back losses from a sharp reversal earlier in the month. That said, the underlying tone remains cautious, especially after a 1.41% slump left Sterling looking overstretched on the downside.
Now with the UK political climate shifting, markets are beginning to weigh in on the broader implications of regulatory changes and tax easing measures under Starmer’s new agenda. These measures are pitched as solutions aimed at softening the blow from overseas tariffs, particularly from across the Atlantic, though their economic effect may take time to filter through.
At the same time, rate markets remain firmly focused on the Bank of England’s early May gathering. Swaps have almost fully priced in a 25-basis-point reduction, and that expectation has started to seep into positioning in the options markets. This kind of rate compression typically acts as a headwind for Sterling, and the short-term path lower, possibly as far as 1.2675, is increasingly being reflected in flow data. However, deeper pullbacks below 1.2580 do not appear to be on the cards right now.
On the technical front, we’re keeping an eye on the 1.2820 and 1.2870 barriers—which, should GBP/USD breach these, could trigger profit-taking or repricing of short-term views. The oversold metrics we’ve been tracking are easing, and lower momentum on the downside could suggest a near-term base is attempting to form.
Market Positioning Strategies
From where we stand, watching for any divergence between rate expectations and Sterling pricing will be key. If the Bank does indeed follow through on a cut, yet foreign exchange markets shrug it off, then positioning may be stretched, and a corrective bounce could follow. On the flip side, should the Pound falter towards the expected 1.2675 amid a dovish policy tone, we’d anticipate a more active defence from dip-buyers, especially those not yet fully allocated.
For the next week or two, it’s worth avoiding complacency. Keep your levels well-defined. Reaction to macro data, particularly wage growth and inflation readings, will likely offer sharper insight than broad headlines about policy outlooks. This is not the time to chase breakouts without confirmation, nor is it the time to expect linear movement. Instead, adjustment in exposure around key technical pivots, profile shifts in implied volatility, and attention to implied skew directionality could offer the best guide.
Position sizing should remain conservative until there’s clarity from the central bank and a cleaner divergence from correlated assets like EUR/USD. That pairing has shown similar patterns in recent sessions, but has its own sensitivities to ECB expectations. Any short-term divergence there could create spillover opportunity in the GBP crosses, which we’ll be scanning closely.
