FX Focus: GBP Testing the line

Research evidence excerpt

FX Focus: GBP Testing the line

13 May 2026

FX Focus: GBP CurrenciesGlobal

Testing the line

◆ Global risk sentiment has supported GBP-USD despite Nick Andrews

unresolved geopolitical risks Senior FX Strategist HSBC Bank plc

nick.andrews@hsbc.com

◆ The BoE’s QT program has shrunk GBP liquidity, which may +44 207 9912376

provide an additional buffer via cross-currency swaps Paul Mackel

Global Head of FX Research

The Hongkong and Shanghai Banking Corporation Limited

◆ Renewed UK policy uncertainty will test GBP resilience if paulmackel@hsbc.com

doubts around fiscal discipline emerge +852 2288 5523

The Middle East conflict has tested the resilience of GBP-USD. So far, it has

emerged largely unscathed, but clouds continue to gather. Disruptions to supplies of

Gulf commodities are yet to be resolved, while the UK Prime Minister faces

increasing pressure from within the Labour Party to step down (The Times, 12 May).

In the past, GBP has tended to be vulnerable in uncertain times. Favourable interest

rates, buoyant global risk appetite and shifting GBP liquidity dynamics appear to have

steadied the ship.

In April, we introduced a framework for looking at the GBP outlook (see FX Focus:

GBP Walk the line, 8 April). Since the last Autumn Budget, GBP-USD has traded in

“phase one”. Here, cyclical standard drivers of currency performance, such as risk

appetite, interest rate expectations and, since 27 February, oil prices have tended to

dominate. In short, international factors rather than UK-specific ones matter most. But

we noted in our framework how UK policy uncertainty can undermine the currency.

We cannot ignore emerging policy uncertainty. In the early 1990s, James Carville, a

political adviser to Bill Clinton, famously said he would like to be reincarnated as the