GBP/USD fell for a fourth day and was set to end the week down more than 2%. It traded near 1.3343, the lowest since 8 April.

UK political turmoil weighed on the pound amid speculation that a future prime minister could widen fiscal deficits. Wes Streeting resigned as health minister, and Reuters reported Andy Burnham was offered a route for a possible leadership challenge after a Labour lawmaker said he would resign his seat.

Risk aversion rose after Donald Trump said he was unhappy with Iran and “not going to be much more patient”. WTI rose by more than 2.39%, while the US Dollar Index moved to 99.29, up 0.39%.

Rising energy prices fed inflation fears and pushed global bond yields higher. Prime Terminal data showed the implied chance of a US rate rise by end-2026 at 50%.

US Industrial Production rose 0.7% month on month in April, above 0.3% forecasts and March’s -0.3%. Next week brings UK jobs, inflation, flash PMIs and Retail Sales, plus Bank of England speakers, while US housing and jobs data and Federal Reserve speakers are due.

GBP/USD traded around 1.3320, below 50-, 100- and 200-day SMAs near 1.3430, with RSI (14) near 37. Resistance sits near 1.3430 and then 1.3616.

Given the current market conditions, we see a clear signal to position for further weakness in the British Pound against the US Dollar. The combination of political instability in the UK and a strengthening US economic outlook creates a powerful bearish driver for the GBP/USD pair. This divergence between the two economies is becoming the dominant theme.

The leadership challenge against Prime Minister Starmer is creating significant uncertainty, reminding us of the market reaction to the fiscal plans of 2022 which sent the pound tumbling. Markets fear his successor could pursue policies that increase the UK’s deficit, which typically weakens a currency. With UK inflation having remained stubbornly above 3% for much of 2025, the Bank of England has very little room to cut rates to support the economy.

On the other side of the trade, the US dollar is gaining strength. Strong industrial production numbers, following a trend of robust labor market data we saw through the end of 2025, are forcing markets to price in a more aggressive Federal Reserve. The probability of a Fed rate hike by the end of this year is now a coin toss at 50%, a sharp increase from just a few weeks ago.

Rising oil prices, driven by geopolitical tensions with Iran, are amplifying this trend. As a major energy importer, higher energy costs act as a tax on the UK economy, further weighing on its growth prospects. Conversely, a strong dollar and the potential for higher interest rates in the US make the greenback more attractive.

This environment suggests that volatility in the GBP/USD pair is likely to increase. The technical picture supports a continued decline, with the pair trading well below the key 1.3430 resistance level. Any brief rallies toward this zone should be viewed as selling opportunities rather than a change in trend.

For the coming weeks, we should consider buying put options on the GBP/USD pair to capitalize on potential further downside. This strategy provides a defined risk while allowing for significant profit if the pound continues to fall toward the 1.3200 level. The current downward momentum suggests that put options with expirations in late June or July could be effective.

Alternatively, for those looking for a more conservative approach that profits from time decay, establishing a bear call spread would be a viable strategy. By selling a call option with a strike price around the 1.3430 resistance level and buying a further out-of-the-money call for protection, we can profit if GBP/USD stays below this key technical barrier. This position benefits if the pound falls, moves sideways, or even rises slightly, as long as it stays below our short strike.