The British pound is trading below the key $1.35 level, drawing fresh attention from forex traders, investors, and market analysts alike. As the new week unfolds, two major events are shaping sentiment around sterling: the upcoming Bank of England (BoE) testimony and a closely watched UK by-election. Together, these developments could determine whether the pound rebounds or extends its recent weakness.
For anyone following the GBP/USD exchange rate, UK interest rates, or broader global currency markets, this week may prove pivotal.
Why Is Sterling Below $1.35?
The pound’s recent dip under $1.35 reflects a combination of domestic and global pressures. On the international front, a stronger US dollar has weighed heavily on major currencies. Persistent inflation concerns in the United States and expectations around Federal Reserve policy have kept the dollar supported, limiting sterling’s upside potential.
At the same time, UK-specific challenges are contributing to cautious sentiment. Economic growth in Britain remains fragile, consumer spending has softened, and business investment is still recovering from previous shocks. These factors are forcing investors to reassess the near-term outlook for the UK economy.
Currency markets are highly sensitive to interest rate expectations. Even subtle changes in tone from central banks can shift billions in capital flows. With the Bank of England set to provide testimony this week, traders are reluctant to make aggressive bets on sterling until they hear more clarity.
Bank of England Testimony: What to Watch
The Bank of England’s testimony before lawmakers is likely to be the most influential event for the pound this week. Investors will be listening carefully for signals about future monetary policy, especially regarding:
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Interest rate direction
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Inflation outlook
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Wage growth trends
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Economic growth projections
If BoE officials maintain a hawkish stance — emphasizing that inflation risks remain elevated — the pound could find support. Higher interest rates typically strengthen a currency because they offer better returns to investors holding assets denominated in that currency.
However, if policymakers sound more cautious and hint at potential rate cuts to support growth, sterling may face additional downward pressure. Markets are particularly sensitive to forward guidance, and even small shifts in language can trigger sharp movements in the GBP/USD pair.
For forex traders and investors focused on currency trading strategies, this testimony could create short-term volatility and longer-term trend signals.
UK By-Election: Political Risk Back in Focus
Beyond monetary policy, political developments are also influencing sterling today. The upcoming UK by-election is being closely watched as a potential indicator of broader political momentum.
While by-elections do not always lead to immediate policy changes, they can shape investor confidence. Political uncertainty tends to weaken currencies, especially when it raises questions about fiscal policy, government stability, or regulatory direction.
If the election outcome signals increased political fragmentation or policy unpredictability, the pound may struggle to regain ground. On the other hand, a result that reinforces stability could ease some investor concerns.
In currency markets, perception often matters as much as reality. Even symbolic political shifts can influence capital flows and short-term exchange rate trends.
Technical Outlook for GBP/USD
From a technical analysis perspective, the $1.35 level has acted as a psychological support zone. Breaking below it may trigger additional selling pressure, particularly if momentum indicators confirm a bearish trend.
Key levels traders are watching include:
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Support near $1.33
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Resistance around $1.36
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Broader range between $1.30 and $1.40
If the pound manages to reclaim $1.35 and hold above it, confidence could gradually return. However, sustained trading below this level may encourage further downside testing.
For those engaged in forex trading, CFD trading, or international money transfers, these price movements are more than just numbers — they directly impact returns and transaction costs.
Broader Economic Factors Influencing the Pound
Several underlying factors continue to shape sterling’s performance:
1. UK Inflation Trends
Although inflation has cooled from previous highs, it remains above the Bank of England’s target. Sticky services inflation and wage growth continue to complicate policy decisions.
2. Global Interest Rate Environment
The relative stance of the Federal Reserve compared to the Bank of England plays a crucial role in GBP/USD movements. If US rates stay higher for longer, the dollar may maintain its strength.
3. Economic Growth Prospects
The UK economy faces ongoing challenges, including weak productivity growth and cautious consumer spending. Any positive data surprises could provide relief for sterling.
4. Market Risk Sentiment
As a major global currency, the pound is also influenced by broader investor risk appetite. In times of global uncertainty, capital often flows toward safe-haven assets like the US dollar.
What Could Happen Next?
Several scenarios could unfold this week:
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Hawkish BoE + Stable Political Signal: Pound recovery above $1.35
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Dovish BoE + Political Uncertainty: Further downside toward $1.33 or below
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Mixed Signals: Continued range-bound trading
Volatility may increase around the timing of official statements and election results. Traders should remain aware of rapid price swings and potential liquidity shifts.
Why This Week Matters for Investors
The current setup places sterling at a crossroads. With the pound below $1.35, markets are waiting for clear direction. The combination of central bank testimony and political developments creates a high-impact environment for the UK currency.
For investors in UK stocks, international businesses, property markets, or foreign exchange platforms, movements in sterling can significantly affect portfolio performance. A weaker pound may benefit exporters but increase import costs and inflationary pressures domestically.
Final Thoughts
Sterling’s position below $1.35 highlights the delicate balance between economic fundamentals, monetary policy, and political stability. As the Bank of England prepares to speak and voters head to the polls in a key by-election, this week could set the tone for the pound’s next major move.
Whether you are a forex trader, long-term investor, or simply watching the GBP/USD exchange rate for business or travel purposes, staying informed is essential. The pound has entered a critical phase — and the coming days may reveal whether it regains strength or faces renewed headwinds in global currency markets.
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