The pound’s rapid breakout reinforces arguments for further long‑term appreciation, but the speed of the recent rally limits the scope for a quick rise in the near term. Currency strategists at Bank of America reached that conclusion. Over the past week, the EUR/GBP pair fell below 0.85, approaching the bank’s year‑end target around 0.84. Sterling’s gains were supported by a positive interest rate differential, strong UK economic data, and stabilizing domestic politics. As a result, the pound became the best‑performing major currency of the month, helped in part by forced covering by traders holding short positions.
Analysts’ short‑term view on EUR/GBP has shifted to neutral. Thus, momentum indicators point to an inevitable consolidation period before the resumption of sustained gains against the euro. At the same time, the GBP/USD pair looks less overheated: at the current spot rate of about $1.35, the pound is only 1-2% overvalued, since Bank of America’s comprehensive model places fair value near $1.33. Strategists expect muted moves over the summer, followed by a surge in volatility in the fourth quarter around the US midterms and the presentation of the UK budget.
Policy remains the key driver for the pound. The removal of uncertainty around Andy Burnham’s bid for Labor Party leadership initially supported sterling and the gilt market. Attention has now shifted to the formation of a new government, its commitment to fiscal rules, and spending plans ahead of the November budget. The structural predominance of short positions since 2025 leaves the pound highly sensitive to any fresh positive economic data out of the UK.
