UK: Market implications of current spell of uncertainty (2/2)

Near-term, GBPUSD is once again in an area of indecision. Following yesterday’s recovery, spot prices are coalescing around 1.3663 – conveniently the 38.2% retracement of the YTD range. In fact, this chart pattern has helped define pivot points, support and resistance for the pair so far this month – which should raise focus on these levels through any incoming price action.

Source: MNI / Bloomberg Finance L.P.

Longer-term, GBPUSD looks prime to be re-rated should there be an extended spell of uncertainty. Consensus looks for a rise to 1.39 into 2027 from 1.36 at the end of Q2 this year, a view that may be challenged should the increasingly positive analyst and technical view on EURGBP so far in 2026 continue to play out. Our broader technical view on EURGBP here: 

Source: MNI / Bloomberg Finance L.P.

This leaves GBP implied vols looking particularly lumpy over the medium-term, with 6m vols narrowing in on 8 points this week. Notably, this puts outright vol at levels comparable with early July last year and, in particular, the rally that coincided with Chancellor Reeves’ appearance in the Commons that triggered questions about Starmer's leadership and the sustainability of his government.