GBP/USD Rebounds to 1.3235 as UK Political Turmoil Caps Recovery

Q: With the Fed hawkish and the Bank of England paralyzed, which central bank will be forced to pivot first?

The Bank of England looks more likely to be forced to pivot first. The reason is the asymmetry in each central bank’s position. The Fed is hawkish by choice and still has room to stay there: U.S. inflation is running around 4.2%, growth and retail sales have been resilient, labor markets have stabilized, and higher Treasury yields plus safe-haven demand are supporting the dollar. Markets have largely pushed out Fed cuts, and some pricing even allows for a chance of another hike. That means the Fed is not yet being cornered into a policy reversal. The BoE, by contrast, is trapped between weak growth and renewed inflation risk. The UK faces stagflation pressure, with OECD growth forecasts near 0.7% and inflation still above target. The BoE held rates at 3.75%, but its own messaging shows a conditional hold rather than comfort: policymakers are watching for second-round effects in wages and prices, and several members have signaled that a hike may be needed if inflation persistence worsens. In other words, the BoE is less “paralyzed” than constrained. That matters for GBP/USD. Sterling’s rebounds toward 1.3250-1.3300 are still seen as corrective while the macro backdrop favors the dollar. Unless the BoE is forced into a clearer tightening pivot, rallies may remain capped. If UK inflation broadens while growth stays soft, the BoE will likely have to move before the Fed does—because its trade-off is harsher and its room to wait is smaller.

2 articles · Updated · tmgm.com · Jun 22

GBP/USD climbed back to 1.3235 in Asian trading after opening the week with a bearish gap, but the pair failed to fully reverse the drop and upside remained limited.
A modest USD pullback followed a 60-day roadmap announced by Qatar and Pakistan to secure a final US-Iran peace deal, prompting short-covering in the pair.
Dollar support persisted as the Fed's hawkish stance and renewed Middle East tensions kept safe-haven demand alive after Iran again closed the Strait of Hormuz and walked out of Swiss talks.
Sterling also stayed under pressure from reports Keir Starmer could resign as early as Monday and from reduced Bank of England rate-hike bets, leaving rallies vulnerable to fresh selling.