GBP/USD Breaks $1.35: What Drove Sterling Higher and Key Levels to Watch

1. Collapse in UK Political Risk – After Prime Minister Keir Starmer's resignation, Andy Burnham's smooth path to Labour leader and prime minister, along with the appointment of Shabana Mahmood as finance minister, crushed the domestic political uncertainty that had weighed on the pound for weeks . The new government's cautious fiscal stance further eased investor concerns .

2. Hawkish Bank of England Surprise – On July 30, the BoE voted 6-3 to hold rates at 3.75%, a wider hawkish margin than markets had expected. It warned inflation would likely rise later in the year due to higher energy prices, which boosted sterling to $1.34 immediately and set the stage for the August push .

3. Weaker US Jobs Data and Softer Dollar – A weaker-than-expected US jobs report sharply reduced market expectations of a Fed rate hike in September, sending the dollar lower across the board. That directly lifted GBP/USD through $1.35 .

4. Easing Oil Prices – Falling crude prices reduced worries about inflation and the economic impact from the US-Israeli conflict with Iran, removing a headwind for sterling .

5. Strong UK Growth Data – Better-than-expected UK economic growth figures added to the pound's fundamental support through July .

Key Data Shaping the Outlook

With no Bank of England meeting scheduled for the week of August 3–7, GBP/USD is set to take its direction almost entirely from the US side of the pair, specifically from Friday's non-farm payrolls (NFP) report . Forecasters see the pair trading broadly between 1.32 and 1.36 over the week . The 150 basis-point BoE-ECB rate gap supports GBP crosses, but the BoE-Fed differential remains the primary driver .

Positioning Shifts

CFTC speculative net positions for the week ending August 7 showed –57.8K contracts, improving from –64.8K the prior week . Speculative shorts are still dominant, but the pace of short covering has accelerated. Through July, three consecutive weeks of short covering brought speculative net shorts from –71.3K to –55.6K through July 16, though specs remained net short overall .

The median year-end target across 21 bank desks is 1.35, but the spread between the most bullish (Morgan Stanley at 1.47) and most bearish (Citi at 1.24) calls is a wide 0.23, signaling meaningful disagreement on the path ahead .

Technical Levels

As of August 7, GBP/USD was trading around 1.3492, with a day's range of 1.3434–1.3509 .

• Resistance: 1.3500 – Major psychological round number and multi-week resistance. Price has tested it repeatedly but failed to close decisively above. Some analysts see bearish double-top price action near this level .
• Key Upside Trigger: 1.3555–1.3560 – UOB and others see a break above this zone as necessary to open the path toward 1.3600 and beyond .
• Support: 1.3385–1.3406 – Near-term support; if 1.3500 holds, any pullback is expected to find a floor here .
• Major Support: 1.3274 – Deeper support. Elliott wave analysis suggests longs are viable as long as price stays above this level, with upside targets of 1.3870–1.4140 .
• 50-day MA: 1.3387 – The 50-day moving average has held as dynamic support, reinforcing the bullish trend structure .
• RSI(14): 63.3 – In bullish territory but not overbought, suggesting room for further upside .

Overall Technical Picture

The broader trend remains bullish, with price above both the 50-day and 200-day moving averages . However, the repeated failure to crack 1.3500 decisively has created a consolidation zone. Momentum has eased in the near term, and UOB expects a 1.3425–1.3470 trading band in the coming days. A clean break above 1.3560 would be needed to unlock the next leg higher .

Outlook

GBP/USD remains in a tug-of-war between bullish fundamentals (political stability, hawkish BoE, positioning squeeze) and technical resistance (1.3500 cap). The dominant near-term catalyst is Friday's US non-farm payrolls report . A decisive break above 1.3560 could open the path to 1.3600 and beyond, while a failure to hold 1.3385 would weaken the bullish case and could lead to a test of 1.3274 .