GBP Correction Looms as USD Rebound Accelerates

TD Securities has signaled that the British pound’s recent strength against the dollar may be reversing course, as the U.S. currency gains traction following a period of broad weakness. Market strategists point out that gbp’s recent climb was primarily supported by a sustained dollar sell-off across multiple currency pairs. However, seasonal factors typical of Q1 tend to favor U.S. economic data outperformance, which historically propels the dollar higher against major currencies including gbp.

The Dollar’s Recent Weakness Reversing Course

The recent gbp rally has been underpinned by dollar weakness rather than fundamental pound strength. According to market analysis, the greenback experienced sustained selling pressure in recent weeks, allowing sterling to climb against it. This dynamic, however, appears set to shift as U.S. economic indicators strengthen seasonally in the first quarter, a traditional period of resilience for American data prints. Strategists anticipate this seasonal rebound could reignite dollar demand and pressure gbp lower.

Political Uncertainty Compounds Market Challenges

Adding pressure to gbp’s outlook are renewed concerns over UK political stability. Following the Bank of England’s narrow decision to hold interest rates steady on Thursday, market focus shifted to potential leadership challenges facing Prime Minister Keir Starmer. This political uncertainty has weighed on sentiment toward the pound, contributing to a 0.7% decline in GBP/USD to 1.3548 following the rate decision announcement.

What Lies Ahead for Sterling

The confluence of technical dollar strength, seasonal U.S. data tailwinds, and political headwinds suggests gbp faces a challenging technical setup in the near term. Traders and investors should monitor upcoming U.S. economic releases and any developments regarding UK political stability, as these factors could determine whether the pound’s recent gains prove sustainable or mark the beginning of a corrective phase.