UK Budget in Focus: GBPUSD 1.33 Emerges as Critical Support

Summary:

GBPUSD tumbled to a 2.5-month low on Monday, driven by safe-haven demand amid escalating Iran tensions and rising domestic political uncertainty in the UK.

BUY GBPUSD

EXP

TRADING

1.32997

Entry Price

1.38000

1.30000

1.33005 -0.01026 -0.77%

0.0

Pips

Flat

1.30000

Exit Price

1.32997

Entry Price

1.38000

Fundamentals

UK manufacturing activity remained in expansion territory in February despite intensifying cost pressures, with export orders surging to a 4.5-year high, signaling sustained momentum since the start of the year.

The S&P Global UK Manufacturing PMI final print edged down to 51.7 from January's 51.8—the highest since August 2024. While revised lower from the preliminary 52.0 reading, this marked the fifth consecutive month above the 50 expansion threshold, the longest stretch since September 2024. Overseas demand was the primary growth engine.

The S&P Global New Export Orders Index climbed to 52.4 from 51.9 in January, the highest since August 2021, with robust demand from China, Europe, the US, and the Middle East underpinning order growth.

Risk-off sentiment propelled dollar strength, though sterling's underperformance reflected additional domestic headwinds. The Labour Party, led by Prime Minister Keir Starmer, suffered a crushing defeat in northern England local elections, fueling speculation that the government may pivot further left and expand fiscal spending. Barclays strategists noted that rising influence from moderate left factions within Labour could drive expectations for increased fiscal outlays, elevating sterling's risk premium. "Sterling and gilts are currently signaling caution rather than distress, but policy direction appears increasingly unpredictable as political uncertainty mounts," said George Vessey, Chief FX and Macro Strategist at Convera. "The pound's rebound potential looks limited until Labour provides clearer direction."

Meanwhile, market pricing for Bank of England policy has reinforced sterling weakness. Strategists highlighted that short-dated gilt yields hover near multi-year lows, consistent with softer macro data and expectations of a dovish pivot. UK 2-year gilt yields rose 4 bps to 3.55% on Monday, having touched 3.516% last week, the lowest since August 2024. In contrast, German 2-year bund yields advanced on heightened inflation concerns.

US Dollar Dynamics: Escalating Middle East geopolitical tensions have emerged as the primary catalyst for near-term dollar strength. Following large-scale US-Israeli military strikes on Iran and the death of Supreme Leader Khamenei, shipping through the Strait of Hormuz, through which roughly one-fifth of global oil trade flows, faces severe disruption."Traders will shoot first and ask questions later," said John Briggs, US Rates Strategy Head at Natixis, noting the attack scale and Iranian retaliation exceeded market expectations. Ajay Rajadhyaksha, Global Research Chair at Barclays, cautioned against dip-buying in equities, warning the conflict could prove prolonged with unattractive risk-reward.

Beyond geopolitical factors, resilient US economic data has underpinned dollar strength. The ISM Manufacturing PMI held steady at 52.4 in February, virtually unchanged from January's 52.6 and marking a second consecutive month in expansion territory (50.0). While the New Orders Index retreated to 55.8 from 57.1, the Prices Paid Index surged to 70.5 from 59.0, the highest since October 2022, highlighting tariff-induced input cost pressures. This data mix validated relative US economic resilience while providing fundamental support for the greenback.

Market attention now shifts to Friday's US February nonfarm payrolls report. A Reuters survey indicates consensus expectations of 60,000 job additions, down sharply from January's 133,000, with unemployment ticking up to 4.4% from 4.3%. Citi analysts noted Monday: "We expect geopolitical developments to have limited impact on Fed policy rate plans, with modest upside inflation risks offset by loosening financial conditions and domestic data focus." The bank forecasts 55,000 job gains and 4.4% unemployment, "which should keep Fed officials optimistic about labor market stabilization." Continuum Economics projects a weaker 35,000 print, arguing January's strength partly reflected favorable seasonal adjustments that will reverse in February.

Technical Analysis

On the daily chart, GBPUSD has breached the lower Bollinger Band and EMA200, suggesting unfinished downside momentum. Immediate support lies at psychological levels (1.33) and EMA800 (1.298). Widening Bollinger Bands and downward-sloping moving averages confirm bearish trend formation. The MACD death cross below the zero line signals entrenched bearish momentum, while RSI at 36 indicates oversold conditions with selling pressure dominant.

On the 4-hour chart, expanding Bollinger Bands and downward-sloping MAs show price tracking EMA12 and the lower band in a descending channel. Near-term downside appears incomplete, with high probability of testing the 1.33 psychological support. MACD remains bearish below zero with RSI at 34, reflecting pessimistic sentiment. Overall, GBPUSD is expected to stabilize near 1.33 with rebound potential.

Therefore, traders are recommened to take a strategy of selling rallies initially, then buying dips.

UK Budget in Focus: GBPUSD 1.33 Emerges as Critical Support_1

UK Budget in Focus: GBPUSD 1.33 Emerges as Critical Support_2

Trade Recommendations

Trade Direction: Buy

Entry Price: 1.33

Target Price: 1.38

Stop Loss: 1.3

Valid Until: April 1, 2026 23:55:00

Support: 1.32/1.3/1.28

Resistance: 1.38/1.4/1.41

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UK Budget in Focus: GBPUSD 1.33 Emerges as Critical Support

Risk Disclosure