VT 
The British pound is facing renewed pressure as markets respond to fiscal uncertainty, political shifts under the Labour government, and rising global trade tensions. With sentiment turning cautious, this analysis explores the key drivers behind sterling’s decline and what could shape its path in the near term.
Pound sinks to two-week low
The British pound came under heavy selling pressure on Monday, dropping to $1.3607 – its lowest point in two weeks.
After reaching an earlier high of 1.3681, sterling reversed course as markets grew increasingly concerned about the UK’s fiscal outlook and internal developments within the Labour Party.
Comments from Chancellor Rachel Reeves in The Guardian raised red flags among investors. She hinted that tax increases could be included in the autumn budget, refraining from providing specific figures.
Even this possibility was enough to dampen sentiment, with market participants wary of the potential economic drag associated with higher tax burdens.
Labour’s policy U-turn triggers fresh market unease
Beyond fiscal concerns, a recent shift in Labour’s approach to welfare reform has added to the uncertainty.
Reeves acknowledged that compromises had to be made to maintain party unity, admitting these decisions would “carry costs.”
This backpedalling has sparked speculation about tighter fiscal measures ahead – whether through spending cuts or additional taxes – which has in turn eroded confidence in UK assets.
The pound’s fall signals growing reluctance among investors to hold sterling-denominated instruments in an increasingly unstable policy environment.
Dovish monetary outlook holds steady
While political and fiscal anxieties weigh on sentiment, expectations for UK interest rates remain largely unchanged.
Markets continue to anticipate a 25-basis-point rate cut from the Bank of England in September, given the easing inflation trend and the UK economy’s sluggish growth.
However, the pound’s weakness could complicate monetary policy decisions. A further decline may lead to imported inflation, as the cost of foreign goods rises – potentially forcing the BoE to reconsider or delay its easing cycle.
US tariffs intensify external headwinds
Global trade tensions have added another layer of pressure. Former President Donald Trump confirmed that reciprocal tariffs would return from 1 August, reverting to levels seen on 2 April for countries lacking formal trade deals.
US Treasury Secretary Scott Bessent warned that nations without completed agreements would face higher default rates.
Trump also suggested a 10% punitive tariff on countries aligned with what he described as “anti-American BRICS policies.”
This rhetoric has reinforced a risk-off mood in global FX markets. With the US dollar already supported by robust labour data and reduced expectations for Fed rate cuts, sterling has faced additional downward drag.
Technical analysis: Bearish momentum builds
GBP/USD continued its downward correction, slipping to an intraday low of 1.36028 following a retreat from the recent high of 1.36815.
Picture: GBPUSD dips below 1.3610 as downside momentum builds. Support eyed at 1.3580, as seen on the VT Markets app.
The pair remains below its 5-, 10-, and 30-period moving averages – all of which are trending downward – indicating sustained short-term bearish momentum.
The MACD indicator is firmly below its signal line, with the histogram expanding in negative territory.
Unless the pair can reclaim the 1.3620 level soon, a further move toward 1.3580 looks increasingly likely.
Traders may also monitor for early signs of bullish divergence on the MACD as a potential reversal cue.
Policy developments steer the outlook
With focus now turning to the autumn budget and the Bank of England adopting a dovish stance, GBP/USD is likely to remain under pressure in the near term.
Unless the UK government provides greater clarity on fiscal policy or economic data surprises on the upside – particularly in employment – the pound could find it difficult to break back above the 1.3680 threshold.
Meanwhile, any escalation in US trade policy ahead of 1 August could further lift the dollar and keep cable subdued.
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