British Pound: Sterling Rallies on Sentiment Boost, GBP/USD Hits Two-Month Highs

Modified: Sunday, 19 July 2026 20:36 BST - Written by David Woodsmith

STORY LINK British Pound: Sterling Rallies on Sentiment Boost, GBP/USD Hits Two-Month Highs

The British Pound has benefited from a significant improvement in sentiment this week, while the US Dollar has struggled to gain traction as expectations for Federal Reserve policy have shifted.

The Pound to Dollar exchange rate (GBP/USD) surged to two-month highs near 1.3550 before correcting back towards 1.3500 as markets digested the sharp move higher.

The Pound’s rally was initially driven by reports that Home Secretary Shabana Mahmood is expected to become Britain’s next Chancellor under incoming Prime Minister Andy Burnham. The prospect of a more fiscally cautious appointment eased market concerns over the UK’s future budget strategy.

MUFG commented; "The pound has continued to trade at stronger levels after strengthening sharply yesterday in response to media reports that Home Secretary Shabana Mahmood is set to become Britain’s next chancellor."

According to ING; “GBP/USD could make a run at 1.3600/3650. And next week looks a big one for UK inputs, with Burnham taking the reins and both CPI and jobs data released.”

UoB assessed the outlook; “The sharp rally appears excessive, but with no sign of pause yet, GBP could continue to rise. However, given the deeply overbought conditions, any advance could be limited to a test of 1.3560. The major resistance at 1.3590 is unlikely to come under threat. To sustain the overbought momentum, GBP must not break below 1.3480.”

Markets were boosted after reports suggested Ed Miliband was less likely to become Chancellor in the Burnham administration, with Mahmood subsequently emerging as the preferred candidate.

Investors have viewed Mahmood as a more market-friendly choice, with expectations that the incoming government will maintain a focus on fiscal discipline.

Kathleen Brooks of XTB commented; “It tells us two things about Andy Burnham’s government: firstly, the market trusts Mahmood to take a sensible approach to economic policy, and to tackle the hard questions of welfare spending, secondly, Burnham is willing to have those to the right of the Labour party in his cabinet in key economic roles.”

The latest UK GDP data was far from spectacular but offered some reassurance that the economy avoided a deeper slowdown.

GDP increased 0.1% in May after a 0.1% decline in April, while growth reached 0.7% in the three months to May.

MUFG commented; “There was also some good news for the pound this morning from the release of monthly UK GDP data for May which has raised our forecast for growth in Q2 up to 0.3% providing further evidence of stronger than expected growth in 1H of this year.”

US Dollar Forecast: USD Struggles as Fed Expectations Shift

The US Dollar has struggled to build momentum as softer inflation data has reduced expectations of further Federal Reserve tightening.

Oil prices also edged lower despite continued military action involving Iran, limiting additional support for the Dollar from safe-haven demand.

Markets are now pricing in only a small probability of a Federal Reserve rate hike at the July meeting, keeping pressure on US yields and the Dollar.

Meanwhile, continuing evidence of weaker Chinese import demand has limited the upside for oil prices, adding another headwind for commodity-linked currencies.

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TAGS: Pound Dollar Forecasts