FX Daily: Burnham’s first market wobble
The recent commentary highlights a widening rift in sentiments towards the GBP and USD, as new PM Andy Burnham's signals about fiscal flexibility have introduced notable volatility in UK markets. Per the full note source, the pound is seen as vulnerable following this announcement, while the USD appears poised for further gains, particularly in light of geopolitical tensions exacerbating in the Gulf region. Our research indicates a current GBP/USD spot around 1.3500 amidst forecasts that modestly cluster around 1.3400, suggesting traders should position accordingly as developments unfold. Euro strength is also under scrutiny, with certain analysts targeting the EUR/USD rate back towards 1.140, indicating volatility across European currencies as well. As we navigate this multifaceted landscape, the undercurrents of fiscal shifts and military actions will continue to shape currency dynamics in the near term.
What the desk is arguing
The desk frames this commentary as indicative of underlying vulnerabilities in the GBP amidst shifting fiscal narratives from the UK government. Following Burnham's comments on fiscal flexibility, both the pound and UK gilts experienced notable selloffs, with analysts emphasizing renewed UK market volatility.
Moreover, the ongoing geopolitical tensions in the Gulf region suggest strong support for the USD, which, per the source, remains somewhat disconnected from the potential upside risks with a DXY move to approximately 101.50 seeming plausible given current dynamics. Positive U.S. economic indicators and the Federal Reserve's pre-meeting blackout suggest an overall bullish backdrop for the dollar.
Where it sits in our coverage
Our internal consensus for GBP/USD currently sits at 1.3500, with a range of 1.2400 to 1.3800. Firms such as goldman and mufg forecast 1.3600 and 1.3700 respectively for December 2026, showcasing a slightly bullish outlook despite recent volatility.
The desk maintains a cautious alignment with these targets, as our view rests comfortably within the median while reflecting a broader consensus that remains slightly bullish on the GBP over time. However, the recent volatility signals that traders should remain cautious amid potential shifts in this outlook.
How other firms see it
Several firms display alignment with our view on GBP weakness and USD strength. Firms like bofa and citi highlight a bearish sentiment on the GBP, while goldman and mufg project a rally in the USD due to ongoing geopolitical factors. Conversely, some other analysts, including nomura and rbc, have slightly bearish targets for GBP/USD in the upcoming quarters, suggesting varying levels of confidence in the UK’s fiscal recovery.
The performance of the EUR/USD can serve as a litmus test for upcoming ECB policy direction, especially as rate differentials play a pivotal role in shaping that pair's trajectory moving forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01GBP faces potential volatility following new PM Andy Burnham's comments about fiscal flexibility.
- 02USD support is expected to strengthen amid escalating tensions in the Gulf region.
- 03The current spot for GBP/USD is 1.3500 with a broad consensus forecasting stability around this level.
- 04Expect important support levels in USD and continued GBP weakness as geopolitical risks remain elevated.
Market implications
Watch for potential GBP levels testing below 1.3400 as traders react to fiscal developments. The upcoming military escalations could propel the USD beyond 101.50 if tensions intensify further.
Risks to this view
Any shift in sentiment regarding military actions or improvements in UK fiscal conditions could hasten a reversal of the current USD support, which may destabilize upcoming projections for GBP. Additionally, unexpected changes in ECB or Fed monetary policies could reframe the currency landscape significantly.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bullish | 1.1500 |
HSBC | Bearish | 1.1000 |
Scotiabank | Bearish | 1.1200 |
Articles FX Daily: Burnham’s first market wobble Published 07:25 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Gilts and the pound faced some volatility yesterday after new UK Prime Minister Andy Burnham signalled some flexibility with the fiscal rules. We still see vulnerabilities for the recently outperforming GBP. Elsewhere, USD has further room to rally from here as the market still appears dangerously complacent about the military escalation in the Gulf Francesco Pesole , Frantisek Taborsky and Chris Turner 10-year gilts materially underperformed other European bonds after new UK Prime Minister Andy Burnham said he intends to use flexibility within the fiscal rules USD: Complacency remains a risk The FX market is gradually catching up with developments in the Gulf, where tensions still appear to be escalating, and the dollar has found broad-based support.
US President Donald Trump has pledged retaliation against Iran following the killing of three US service members in Jordan, while Houthi militants are threatening a blockade of Saudi Arabia in the Red Sea. Brent has reached $90, still well below the spring highs, but FX markets may now be reacting less to the risk of sharp short-term spikes and more to the prospect of oil prices remaining elevated for longer. The bond sell-off and the spillover into equities reflect that shift.
Dollar risks remain skewed to the upside today as markets continue to display a risky degree of complacency towards the military re-escalation. A move back to 101.50 in DXY looks entirely consistent with the current backdrop. The US calendar is light today, and the Federal Reserve remains in its pre-meeting blackout period.
Francesco Pesole EUR: Test of 1.140 looks imminent EUR/USD may soon retest 1.140. Rate differentials have provided support, but we are not convinced rate expectations for the European Central Bank can move much further from here. Markets are already pricing 44bp of easing by year-end, and the hawkish impulse may start to fade beyond 50bp.
Even at the peak of the spring oil rally, markets never priced the year-end deposit rate above 2.75%. That suggests further oil price gains may increasingly weigh on EUR/USD. If 1.140 breaks, the next key support is 1.1330, the June low.
Today's German July ZEW release is expected to show improvement in both the expectations and current situation components. Francesco Pesole GBP: A shaky first day for Burnham and markets UK Prime Minister Andy Burnham's first day in office brought some market turbulence. 10-year gilts materially underperformed other European bonds after he said he intends to use flexibility within the fiscal rules, triggering a negative, albeit limited, reaction in sterling. Attention this morning will be on the bond market response to yesterday's post-market surprise appointment of John Healey as Chancellor of the Exchequer.
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