The British pound continued its recovery against the US dollar during the Asian trading session on Thursday, with the exchange rate hovering near 1.3400. While sterling found some support from a significant reduction in domestic UK political risks, the US dollar remained resilient due to safe-haven inflows and the Federal Reserve's cautious policy stance, which capped the pound's upside.

Recent developments in British politics have brought a change. With the resignation of former Prime Minister Keir Starmer at the end of June, market concerns over political uncertainty have gradually subsided. The UK's ruling party formally initiated the process to elect a new leader on July 9, and it is widely anticipated that the front-runner, Andy Burnham, is likely to assume the role of Prime Minister around July 20. This suggests the future policy direction of the UK government may become clearer, improving market risk sentiment and providing some support for the pound. However, fundamentals also favored the US dollar. The release of the Federal Reserve's June monetary policy meeting minutes, the first under Chairman Kevin Warsh, revealed significant internal disagreement within the Federal Open Market Committee regarding the future path of interest rates. The minutes indicated that some officials believe the federal funds rate should remain within or slightly below the current target range by year-end, showing some policymakers are beginning to focus on risks from slowing economic growth. Concurrently, another group of officials argued that the year-end rate should be higher than current levels, as inflationary pressures have not fully subsided, necessitating maintaining a restrictive monetary policy for a longer period.

This outcome suggests the Fed's future policy trajectory remains highly data-dependent, particularly on inflation, employment, and consumption figures. Market expectations for a rate cut or hike within the year have not converged, contributing to the dollar's relative stability. Meanwhile, the Middle East situation has again become a market focus. Recent US airstrikes on targets within Iran, followed by retaliatory actions by Iran against related targets in Bahrain, Kuwait, and Qatar, have rapidly escalated tensions in the Persian Gulf region. Market surveys indicate that prior US military actions against Iranian military facilities and port targets, coupled with Iran's successive countermeasures against Gulf region targets, have significantly heightened market risk aversion.

As geopolitical risks have re-escalated, international capital has continued flowing into traditional safe-haven assets like the US dollar, keeping the US Dollar Index relatively strong, which also dampens the upward momentum for GBP/USD. Simultaneously, concerns over global energy supply are keeping international oil prices elevated, renewing market worries about the global inflation outlook and further increasing the likelihood the Fed maintains a cautious policy stance. Overall, the core factors currently influencing the GBP/USD trend primarily include the improved UK political environment, the Fed's policy outlook, and Middle East geopolitical risks. Among these, stabilizing UK politics helps improve market confidence in the UK economic outlook, while the dollar benefits from safe-haven inflows and resilient rate expectations. The interplay between these two forces is likely to keep the exchange rate in a high-level consolidation in the near term. From a daily chart perspective, GBP/USD continues to trade near its medium-to-long-term moving averages, maintaining an overall bullish bias. The MACD is operating above the zero line with its lines maintaining a golden cross structure, indicating the medium-term uptrend remains intact, though the shortening red momentum bars suggest waning bullish momentum. A decisive break above the 1.3425 resistance level could pave the way for a further test near 1.3480. On the downside, key support areas to watch are 1.3330 and 1.3265; a breach here could trigger a deeper correction. On the four-hour chart, GBP/USD maintains a short-term, consolidation-strong pattern, with price action above short-term moving averages. The MACD remains above zero, but its momentum bars are beginning to narrow, indicating a slight weakening in short-term buying pressure. If UK political stability persists and demand for the dollar as a safe haven cools, the pair could break above 1.3425 and challenge 1.3480. Conversely, if the Middle East situation deteriorates further, boosting dollar strength, the pair might retreat to test support around 1.3330 or even 1.3265. The short-term direction will continue to be influenced by both geopolitical developments and Fed policy expectations.

The easing of UK political risks has provided temporary support for the pound, but significant internal Fed disagreement on the rate outlook, coupled with escalating Middle East tensions driving safe-haven flows into the dollar, has limited the upside for GBP/USD. In the near term, the exchange rate is likely to fluctuate around the process of forming a new UK government, signals from Fed policy, and the evolution of the Middle East situation. A smooth political transition in the UK and improved market risk sentiment could allow the pound to strengthen further. Conversely, if risk aversion continues to intensify, the dollar's advantage may widen again, potentially putting GBP/USD under pressure for a pullback from recent highs.