The dollar's continued rebound pressured the pound against the dollar, awaiting the release of US PPI data.
2026-05-13 15:16:02
The pound rose modestly against the dollar in early European trading on Wednesday, briefly approaching 1.3530, as improved market risk appetite provided some support. However, continued escalating domestic political uncertainty in the UK, coupled with lingering safe-haven risks in the Middle East, significantly limited the pound's upside potential. Recent UK local election results have placed Prime Minister Keir Starmer under greater political pressure. With the ruling Labour Party suffering significant losses in several regions, the market is focusing on the stability of the UK government's future policies. Although Starmer has clearly stated he will not resign, market concerns that political uncertainty could influence the direction of UK fiscal and economic policies, thereby weighing on the pound.
Meanwhile, the recent rise in UK government bond yields reflects increasing market concerns about the UK's fiscal environment and political situation. Some institutions believe that the UK asset market is currently facing the resurgence of a "political risk premium," making the pound relatively cautious among European currencies.
Regarding the US dollar, market focus has shifted to the upcoming release of the US April Producer Price Index (PPI) later tonight. The market expects the US April PPI year-on-year rate to rise to 4.9% from the previous reading of 4.0%, while the core PPI year-on-year rate is expected to rise to 4.3% from 3.8%. If the data continues to exceed expectations, it will strengthen market expectations that the Federal Reserve will maintain high interest rates for a longer period, thereby driving the dollar to strengthen again.
The market generally believes that US inflation remains somewhat sticky, especially given the persistently high costs in the service sector and labor prices. Therefore, the Federal Reserve is unlikely to rush into a rate-cutting cycle in the short term. The US dollar index has remained strong recently, supported by safe-haven demand and expectations of high interest rates, which has also put some pressure on the pound sterling.
From a global market perspective, the situation in the Middle East remains a key variable influencing risk assets. Market concerns that energy supply risks could reignite global inflation are causing major central banks to remain cautious in their monetary policies. As a result, the US dollar continues to attract some safe-haven inflows, while risk currencies such as the British pound face temporary pressure.
From a technical perspective, the GBP/USD daily chart maintains a mildly bullish structure. The exchange rate is currently trading above the 20-day Bollinger Band and the 100-day moving average, indicating that medium- to long-term buying power remains in the market. Support is found around 1.3540 at the 20-day moving average and around 1.3483 at the 100-day moving average. If the exchange rate can hold above these levels, the overall upward trend is likely to continue. The RSI indicator is currently above 50, suggesting that bullish momentum remains, but it has not yet entered a clearly overbought state, meaning the exchange rate still has some upside potential. However, the upper Bollinger Band around 1.3630 forms a key short-term resistance area. If the US dollar strengthens due to PPI data, GBP/USD may struggle to break through this level effectively.
Overall, the current pound sterling is under the dual influence of "UK political risk" and "US high interest rate expectations," and short-term market volatility may further increase.
Editor's Summary : While the GBP/USD exchange rate remains relatively strong in the medium term, the market environment is beginning to change. Uncertainty surrounding the UK political situation is weakening the pound's fundamental support, while US inflation data may reshape the dollar's future direction. If US PPI continues to show persistent inflation, the Federal Reserve may maintain high interest rates for longer than market expectations, further strengthening the dollar's advantage. Meanwhile, Middle East geopolitical risks continue to influence global market sentiment, with safe-haven funds continuing to flow into dollar assets. For GBP/USD, the key to its future movement lies in US inflation data, Federal Reserve policy expectations, and UK domestic political stability. In the short term, the exchange rate may remain volatile at high levels, but if the dollar re-enters a strong cycle, the pound may face pressure for a period of correction.
Meanwhile, the recent rise in UK government bond yields reflects increasing market concerns about the UK's fiscal environment and political situation. Some institutions believe that the UK asset market is currently facing the resurgence of a "political risk premium," making the pound relatively cautious among European currencies.
Regarding the US dollar, market focus has shifted to the upcoming release of the US April Producer Price Index (PPI) later tonight. The market expects the US April PPI year-on-year rate to rise to 4.9% from the previous reading of 4.0%, while the core PPI year-on-year rate is expected to rise to 4.3% from 3.8%. If the data continues to exceed expectations, it will strengthen market expectations that the Federal Reserve will maintain high interest rates for a longer period, thereby driving the dollar to strengthen again.
The market generally believes that US inflation remains somewhat sticky, especially given the persistently high costs in the service sector and labor prices. Therefore, the Federal Reserve is unlikely to rush into a rate-cutting cycle in the short term. The US dollar index has remained strong recently, supported by safe-haven demand and expectations of high interest rates, which has also put some pressure on the pound sterling.
From a global market perspective, the situation in the Middle East remains a key variable influencing risk assets. Market concerns that energy supply risks could reignite global inflation are causing major central banks to remain cautious in their monetary policies. As a result, the US dollar continues to attract some safe-haven inflows, while risk currencies such as the British pound face temporary pressure.
From a technical perspective, the GBP/USD daily chart maintains a mildly bullish structure. The exchange rate is currently trading above the 20-day Bollinger Band and the 100-day moving average, indicating that medium- to long-term buying power remains in the market. Support is found around 1.3540 at the 20-day moving average and around 1.3483 at the 100-day moving average. If the exchange rate can hold above these levels, the overall upward trend is likely to continue. The RSI indicator is currently above 50, suggesting that bullish momentum remains, but it has not yet entered a clearly overbought state, meaning the exchange rate still has some upside potential. However, the upper Bollinger Band around 1.3630 forms a key short-term resistance area. If the US dollar strengthens due to PPI data, GBP/USD may struggle to break through this level effectively.
Overall, the current pound sterling is under the dual influence of "UK political risk" and "US high interest rate expectations," and short-term market volatility may further increase.
Editor's Summary : While the GBP/USD exchange rate remains relatively strong in the medium term, the market environment is beginning to change. Uncertainty surrounding the UK political situation is weakening the pound's fundamental support, while US inflation data may reshape the dollar's future direction. If US PPI continues to show persistent inflation, the Federal Reserve may maintain high interest rates for longer than market expectations, further strengthening the dollar's advantage. Meanwhile, Middle East geopolitical risks continue to influence global market sentiment, with safe-haven funds continuing to flow into dollar assets. For GBP/USD, the key to its future movement lies in US inflation data, Federal Reserve policy expectations, and UK domestic political stability. In the short term, the exchange rate may remain volatile at high levels, but if the dollar re-enters a strong cycle, the pound may face pressure for a period of correction.
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