Sterling's near-term path looks better supported than it has in weeks, with cooling geopolitical risk, steadier UK politics and a potentially softer Fed path forming a constructive backdrop for the pound. The pound continued its steady ascent on Monday, rising 0.2% in early North American trading as cable benefited from a cooling geopolitical environment—notably easing U.S.-Iran tensions—and a less-charged UK political climate following Prime Minister Keir Starmer’s resignation. Domestic fiscal anxieties are also abating after Andy Burnham committed to existing UK fiscal rules, a move that supports the recent decline in 10-year gilt yields down to 4.72% from their pre-resignation peaks near 5.2%.

With political and fiscal tumult settling, market focus is pivoting back to monetary policy, making this week’s U.S. payroll data highly scrutinized for near-term Fed clues. While the dollar recently gained ground on expectations of a hawkish Fed in H2 2026, a sharp drop in oil prices could temper inflation expectations and revive a more dovish outlook.

Given the deeply stretched sterling short positioning, a calmer UK outlook paired with a softer Fed could trigger an aggressive short-unwinding surge, driving GBP/USD past its initial technical hurdle at the 10-day moving average near 1.3243. Should this momentum clear Monday's 1.3240 high, bulls will confidently target the 200-DMA and daily cloud base near 1.3400, while solid support remains firmly anchored down at Monday's low of 1.3194 and the crucial June 24 trend low of 1.3140.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)