The British pound found its footing against the US dollar during Monday's Asian session, stabilizing after a lower opening. The exchange rate found buying interest around 1.3380, though the broader recovery lacked significant momentum, preventing a sustained move back above the key 1.3400 level. Earlier, the pair had climbed to near 1.3450, marking its highest point in nearly a month, before retreating as demand for the safe-haven US dollar picked up.

Key Factors Influencing the Pound

Domestic political developments in the UK offered some support to the pound. Recent reports indicate that Andy Burnham, the former mayor of Greater Manchester, has secured backing from a majority of Labour MPs to potentially succeed Keir Starmer as the UK's next prime minister. Markets view this progress as helping to alleviate previous concerns about political uncertainty, boosting investor confidence in the continuity of UK economic policy and thereby improving the pound's overall performance.

Concurrently, market participants continue to anticipate that the Bank of England will implement at least one 25-basis-point interest rate hike before the end of 2026. Persistent inflationary pressures in the UK, coupled with relatively stable wage growth, lead markets to believe the central bank will maintain a relatively tight monetary policy stance in the near term. This expectation is a key reason for the pound's recent resilience.

External Pressures on Sterling

However, external factors continue to exert significant downward pressure on the pound. The escalating military conflict between the US and Iran has rapidly heightened market risk aversion. Market surveys indicate that the US military has conducted further strikes on Iranian targets, while Iran has announced the closure of the Strait of Hormuz and launched new attacks on merchant vessels and US military bases in the Middle East. These events have notably dampened risk appetite in global financial markets.

The Strait of Hormuz handles approximately 20% of the world's seaborne crude oil shipments. The deteriorating situation has pushed international oil prices higher. Rising energy costs have reignited concerns about global inflation and reinforced market expectations that the US Federal Reserve will maintain its high-interest-rate policy for a longer duration. Consequently, the US dollar, as a traditional safe-haven asset, has attracted capital inflows, with US Treasury yields remaining elevated, thereby exerting pressure on the GBP/USD pair.

Market Outlook and Technical Analysis

In terms of market dynamics, the absence of significant economic data releases from both the UK and the US on Monday means the currency pair's short-term direction is largely driven by the dollar's performance and geopolitical news. During the North American session, speeches from several Federal Reserve officials are expected to provide new policy signals, with investors seeking further clues on the future path of interest rates.

The key market-moving event this week remains the upcoming release of the US Consumer Price Index for June. Should the inflation data come in below market expectations, it could weaken the US dollar and bolster expectations for the Fed to slow its tightening policy, potentially driving the GBP/USD pair higher. Conversely, if the inflation data remains robust, the US dollar could extend its gains, and GBP/USD might face further downside pressure.

From a technical perspective, the daily chart for GBP/USD still shows a structure of consolidation with a slight bullish bias. After the pullback, the exchange rate continues to trade near its medium- and long-term moving averages, indicating the broader uptrend remains largely intact. While the MACD indicator's red bars have shortened slightly, the lines remain above the zero line, suggesting medium-term upward momentum persists. The RSI has retreated to a neutral-to-strong area, reflecting a slight cooling of short-term bullish strength.

If the pair can firmly reclaim the 1.3400 level, it may attempt to challenge the resistance zones around 1.3450 and 1.3500 again. On the downside, key support levels to watch are 1.3370 and 1.3320. A break below these levels could lead to a further decline towards 1.3280.

On the 4-hour chart, GBP/USD appears to be in a short-term consolidation phase, with prices fluctuating around the short-term moving averages. The MACD is operating near the zero line, and the RSI is hovering around 50, indicating a relative balance between bullish and bearish forces.

If the US CPI data triggers a dollar sell-off, the pair could break above 1.3400 and extend its rebound. However, if the US dollar continues to find support from safe-haven buying, GBP/USD may continue to test support in the 1.3370 to 1.3320 range, with short-term volatility expected to increase.