The GBP/USD currency pair traded higher on Monday, but the situation for the British pound is somewhat different from that of the euro. Recall that two weeks ago, the pound experienced a sharp 300-pip drop, triggered not only by geopolitical tensions but also by the market's anticipation of a new breakdown in negotiations and a renewal of war in the Middle East. The UK has entered another political crisis, which could potentially end with the resignation of Keir Starmer and new elections. In addition, the market had long been convinced of the tightening of monetary policy by the Bank of England at the June meeting, but after the April inflation report (the forecasts for which became clear during that disastrous week for the pound), it became evident that the BoE might resume easing in 2026, and tightening is simply not required.

Thus, the pound is currently responding less to the positive geopolitical backdrop and more to a correction after the 300-pip drop. However, it cannot be denied that geopolitics is pushing the GBP/USD pair higher, as demand for the safe dollar decreases once again.

What factors will be significant for the GBP/USD pair in the near future? The market has already priced in inflation, and the BoE's refusal to raise the key interest rate, so the political crisis is not a reason for the pound to fall for several months. Therefore, geopolitics is not just stepping back into the spotlight; this week, it will be the almost sole factor influencing market sentiment.

Consider that there will be a minimal number of macroeconomic reports this week, and among them, none can be truly classified as "important." Expectations regarding the June meetings of the British and American central banks are clear and evident. Starmer has not yet resigned, and he may not. All that remains is geopolitics.

Thus, the conclusion at this time is the most obvious of all possible, but it may not please most traders—the pair will continue to ride the "geopolitical swings." Unfortunately, we cannot know how the negotiations between Iran and the U.S. will conclude, at what stage they are currently, or whether there is a chance of achieving mutual understanding on the "nuclear issue." Believing Donald Trump's word is risky, as the market has seen many times. The only advice we could give in the current situation is to pay attention to events and facts that come from independent sources that have not previously been implicated in misinformation, rather than statements from Trump on his personal social media platform, Truth Social.

If the conflict parties in the Middle East actually sign a memorandum this week or at least in the near future, further growth of the pair should be anticipated. If something goes wrong again, the market may quickly revert to buying the safe dollar. However, it is also important to remember that the geopolitical factor has its expiration date. We certainly do not expect a drop as significant as in February and March.

The average volatility of the GBP/USD currency pair over the last 5 trading days as of May 26 is 64 pips, which is characterized as "average." On Tuesday, May 26, we expect the pair to move within a range limited by levels 1.3335 and 1.3563. The upper channel of the linear regression is directed upwards, indicating a recovery of the upward trend. The CCI indicator has not formed any signals recently.

Nearest Support Levels:

S1 – 1.3489

S2 – 1.3428

S3 – 1.3367

Nearest Resistance Levels:

R1 – 1.3550

R2 – 1.3611

R3 – 1.3672

Trading Recommendations:

The GBP/USD currency pair continues to recover after the 300-pip drop. Trump's policies will continue to exert pressure on the U.S. economy, so we do not expect the American currency to show long-term growth. However, 2026 appears to be quite positive for the dollar. Thus, long positions with targets of 1.3550 and 1.3611 can be considered when the price is above the moving average. When the price is below the moving average line, short positions can be traded with targets of 1.3367 and 1.3348 based on geopolitical factors. The situation in the market frequently changes, and the market continues to primarily track geopolitical news, which does not exhibit a uniform character.

Explanations for Illustrations:

Linear regression channels help determine the current trend. If both are directed in the same way, the trend is currently strong;

The moving average line (settings 20,0, smoothed) determines the short-term trend and the direction in which trading should be conducted right now;

Murray levels are target levels for movements and corrections;

Volatility levels (red lines) indicate the probable price channel in which the pair will reside over the next 24 hours, based on current volatility metrics;

CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250).