Sterling struggles near 1.35 as political uncertainty offsets strong UK growth
GBP/USD is hovering around 1.35 after stronger-than-expected UK growth data, ongoing political uncertainty in Westminster, and broad US dollar strength.
UK GDP showed the economy expanded 0.6% quarter-on-quarter in Q1, in line with expectations and accelerating from 0.2% growth in the previous quarter. March GDP alone rose 0.3%, defying expectations of a contraction and suggesting the economy remained relatively resilient despite inflation and energy shocks stemming from the US-Iran conflict.
The detail beneath the headline was also encouraging, with services, manufacturing, and construction all contributing to growth, pointing to a broader-based expansion rather than one driven by temporary spending distortions.
The resilience is notable given elevated oil prices and ongoing disruption around the Strait of Hormuz. However, markets remain cautious about the outlook, as the economic fallout from the Middle East conflict is expected to intensify throughout the year.
More timely PMI data already showed that private-sector activity weakened in April as soaring energy costs and softer demand weighed on business conditions. As a result, investors increasingly view Q1 growth as potentially the high point for 2026.
Even so, the stronger GDP data may offer some short-term political relief for Keir Starmer and the Labour Party government.
Political uncertainty nonetheless remains elevated. Health Secretary Wes Streeting is increasingly viewed by markets as a continuity candidate and is reportedly considering a resignation that could pave the way for a leadership challenge. Investors generally see Streeting as fiscally more moderate, although he could still face pressure within Labour to increase spending.
Meanwhile, Angela Rayner has reportedly been cleared in an HMRC tax investigation, potentially strengthening her position should a leadership contest emerge. Markets view Rayner’s more left-leaning economic stance less favourably, particularly within the gilt market, amid concerns over higher government borrowing and spending.
Speculation around Greater Manchester Mayor Andy Burnham also continues after reports suggested he may seek a route into Parliament to enter a potential leadership race.
For now, however, there is still no formal challenge to Starmer’s leadership.
GBP/USD – Technical analysis
GBP/USD’s rebound from the 1.32 support zone stalled at 1.3650, forming a potential double top before reversing lower and breaking beneath rising trendline support and the 20-day SMA to reach a low near 1.3485.
Sellers will need to break below 1.3485 to expose 1.3450 and potentially the 200-day SMA near 1.3425.
On the upside, buyers would need to reclaim the 20-day SMA near 1.3550 before targeting 1.36 and the broken trendline resistance.
A move above 1.36 would be needed to re-establish a more bullish structure and create a higher high.
DAX rises as AI optimism offsets geopolitical concerns
The DAX and broader European markets are moving higher on Thursday as optimism surrounding AI and technology demand offsets lingering concerns over stalled US-Iran negotiations and elevated oil prices.
Investor sentiment has continued to improve after record highs on Wall Street reinforced confidence in the AI-driven rally.
Mega-cap technology names remain in focus, particularly after executives from NVIDIA, Tesla and Apple joined Donald Trump’s delegation to China ahead of talks with Xi Jinping.
Even so, rising oil prices continue to act as a restraint on broader upside momentum. Crude has risen more than 7% this week as hopes for a diplomatic breakthrough between Washington and Tehran continue to fade.
The Middle East conflict is expected to feature prominently during the Trump–Xi summit, with markets watching closely for any signs China could help de-escalate tensions and support a reopening of the Strait of Hormuz.
DAX forecast – Technical analysis
The DAX extended its rebound from the 21,860 low to a peak near 25,150 before pulling back. The index has since found support at its rising trendline and moved back above the 200-day SMA, helping keep the broader bullish structure intact.
Momentum indicators continue to support buyers, with RSI holding above neutral levels.
Buyers will look for a move towards 24,500 and 24,800 — the April 17 swing high — before targeting 25,150. A break above there would create a fresh higher high.
Support is seen around 24,140, where the rising trendline and 200-day SMA converge. A break below that level would expose the 50-day SMA near 23,700 before bringing 23,400 into focus.
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