GBPUSD is weighed down by geopolitical tensions and UK political crisis

On Friday morning, GBPUSD jumped back to 1.35650, attempting to end the week in positive territory. Reviving demand for the dollar as a safe haven—driven by renewed jitters in the Middle East—did not stand in the way of the pair's recovery. However, a strengthening greenback and persistent risk-averse sentiment among investors continue to cap any positive local signals for the pound.

In the meantime, the political landscape in the United Kingdom is deteriorating. Upcoming elections are expected to deal a heavy blow to the Labour Party. The market is now pricing in a 70% probability of Keir Starmer leaving office by the end of 2026. Prospects of a new left-wing government with looser fiscal policies have already pushed long-term bond yields higher, putting further pressure on the pound. 

The macroeconomic environment is also working against GBP. Selling prices among UK companies have risen at a record pace since early 2023, driven by surging energy and commodity costs. At the same time, the Construction Purchasing Managers’ Index (PMI) dropped to 39.7 points, screaming that the sector is contracting. A stagflation scenario is unfolding in the British economy, leaving little room for the Bank of England (BoE) to maneuver.

Poles apart, US statistics have just proven to be resilient enough to let the Federal Reserve (Fed) stay hawkish. Initial jobless claims remain near all-time lows, giving the regulator’s officials justification to keep interest rates elevated for as long as possible.

From a technical standpoint, the pair is now consolidating amid overall uncertainty, lacking clear direction. GBPUSD managed to neutralize yesterday’s decline and is currently hovering around today’s opening price. Converging Bollinger Bands confirm this setup, pointing to reduced volatility and energy accumulation ahead of a potential move in any direction. However, the Chaikin Oscillator adds ambiguity. The indicator remains in negative territory, diving deeper, despite the flat trend. This is a sign of latent capital outflows and frail bullish momentum.

Try out the trading plan down below:

Sell GBPUSD at the current price. Place Take profit at 1.34500 and Stop loss at 1.36350.

The forecast is valid between May 8 and May 15, 2026.