Fundamental backdrop:

The macro pendulum has swung back toward sterling. First-quarter UK GDP surged 0.7 % q/q—the strongest print since 2021—prompting the IMF to nudge its 2025 growth call up to 1.2 %. Retail sales accelerated 1.2 % m/m and service-sector inflation jumped to 5.4 % y/y even as the labour market remains tight, all of which argues that March’s 25-bp Bank of England cut was an early down-payment rather than the start of an aggressive cycle. OIS pricing now shows less than 10 bp of easing for the June meeting and only 35 bp by year-end. Across the Atlantic the picture is less supportive for the greenback. A federal court has ruled President Trump’s sweeping “Liberation Day” tariffs unconstitutional, stripping the dollar of a risk-haven prop and undermining the Fed’s tariff-driven inflation narrative. Consumer confidence has bounced, but the minutes of the May FOMC meeting highlight elevated uncertainty and the Fed has already slowed balance-sheet runoff. Fed-funds futures still price two 25-bp cuts in September and December. Meanwhile the two-year gilt-to-Treasury spread has shrunk to –27 bp from –55 bp in January, reflecting firmer UK yields and a neutral US curve—another quiet tail-wind for sterling.

Sentiment and positioning:

CFTC data show leveraged funds flipping to a small net-long GBP position (+6 k contracts) but positioning remains light compared with the +40 k extremes of 2019. Dollar shorts were trimmed by roughly $5 billion last week, explaining Wednesday’s spike in the DXY to 100.5; the tariff ruling knocked that pop straight back, suggesting sellers still dominate dollar rallies. Risk appetite is robust—S&P 500 futures are up 1.8 % and the VIX sits in the low-teens—conditions that historically help cable outperform the dollar.

Technical picture:

Since January GBP/USD has travelled in a steady ascending channel rising about 55 pips per week. Wednesday’s dip held at 1.3434—September’s swing-high and the week’s low—printing a long-legged doji that confirms demand in the mid-1.34s. The 21-day EMA (1.3385) and the channel base (1.3360) backstop the move; while the 14-day RSI at 61 is bullish yet comfortably below overbought territory. Immediate resistance sits at 1.3500, ahead of Monday’s three-year peak at 1.3600, the weekly R1/upper-channel confluence at 1.3680 and the January-2022 high of 1.3750.

Catalysts to watch:

• • US Q1 GDP (13:30 BST): a downside surprise would reinforce sterling strength, whereas a strong beat could trigger a retest of the stop zone.
  • BoE speakers Pill (14:00) and Bailey (17:00): hawkish remarks should lift GBP; any dovish tilt may be faded if UK data momentum stays firm.

• US core PCE on Friday: a reading below 2.5 % would likely weigh on USD; a hot print above 2.6 % risks a temporary pullback toward support.

Strategic narrative:

We view sterling’s recent pull-back is corrective, not capitulative. Domestic growth is re-accelerating, inflation is sticky, and the odds of a June BoE cut are fading, while the Fed drifts in data-dependent limbo and the tariff ruling strips one of the dollar’s few bull arguments. Provided the 1.3360 floor holds, GBPUSD retains scope to revisit—­and potentially break—its three-year highs. Accumulate in the mid-1.34s, protect below 1.3360 and trail the stop once 1.3600 is printed; only a decisive break of the channel would flip the bias.