Pound rallies 1.2% to 9-week high on UK Treasury pick bets

Sterling surged across the board Wednesday, lifting GBP/USD above 1.3500 and pushing GBP/AUD toward a critical breakout above the March high.

The British pound rallied 1.2% against the dollar to a nine-week high after reports that incoming Prime Minister Andy Burnham is considering Shabana Mahmood for finance minister, a choice investors view as fiscally cautious.

"The market is pricing in a more disciplined fiscal approach than what would have occurred under alternative candidates," said Matt Simpson, market analyst at FOREX.com. "Mahmood's appointment would reduce the likelihood of aggressive spending programs that could widen the deficit."

GBP/USD closed decisively above 1.3500 after producing seven consecutive bullish candles during a 146-pip advance, according to TradingView data. The pair is now consolidating near the monthly R1 pivot at 1.3521, though the relative strength index has entered overbought territory, suggesting a minor pullback may precede further gains. The dollar index fell for a second consecutive session, approaching the psychologically important 100 level.

A sustained breakout above 1.3636 — the monthly R2 pivot near the May high — would open the door for a test of levels not seen since early 2026, with implications for UK multinational earnings and hedging strategies across the $7.5 trillion-a-day forex market.

The pound's gains were broad-based, with sterling also advancing against the euro, the Australian dollar and the Japanese yen. The catalyst was a political development: Burnham's reported preference for Mahmood, a candidate with limited direct economic policy experience but a reputation for fiscal restraint, over Ed Miliband, whom investors perceived as more likely to pursue ambitious net-zero spending and higher borrowing.

GBP/AUD staged a notable reversal after a pullback earlier in the week. The pair had fallen toward its 20-day exponential moving average on Tuesday, but Wednesday's bullish engulfing candle suggested the correction may have run its course. The cross is now pressing against the 200-day and 200-week EMAs, with the March high serving as the key resistance level. A breakout above that threshold would bring the 1.9595 high into focus, according to Simpson.

The rally also lifted the pound against the Kenyan shilling, with GBP/KES trading at 175.10, up 1.17% from a week ago and 0.90% from 30 days prior, according to exchangerates.org.uk data.

For GBP/USD, the daily pivot sits just below 1.3500, while the June 15 high aligns with the weekly S1 pivot at 1.3461, providing a potential support zone if the pair retraces. Buyers may target the monthly R2 pivot at 1.3636, just below the May high, as the next upside objective.

The broader dollar weakness that amplified sterling's gains reflects shifting expectations around Federal Reserve policy and a general repositioning after the dollar's recent strength. The DXY's approach toward 100 marks a significant psychological threshold that could determine the next leg for major currency pairs.

This article is for informational purposes only and does not constitute investment advice.