GBP/USD Price Forecast: Bulls seem hesitant as US-Iran tensions counter Fed-BoE divergence

The GBP/USD pair edges higher during the first half of the European session on Friday and recovers a part of the previous day's losses to levels just below mid-1.3400s, or a nearly two-week trough. The US Dollar (USD) pauses following a three-day move up as bulls await further developments surrounding the US-Iran saga. This, in turn, acts as a tailwind for the currency pair, although a mixed fundamental backdrop warrants caution before confirming that the recent pullback from the 1.3600 mark, or over a two-month high touched last week, has run its course.

Despite a temporary extension of the US-Iran ceasefire, investors remain on edge amid the lack of progress in peace talks due to the instability around the critical Strait of Hormuz. US President Donald Trump ordered the US Navy to shoot and kill any boat laying mines in the critical shipping channel. Furthermore, Iran has set the complete removal of the US naval blockade as a strict precondition for resuming negotiations. This dampens hopes for a durable de-escalation and keeps geopolitical risks in play, underpinning safe-haven USD and capping the GBP/USD pair.

Meanwhile, Iran attacked three ships in the Strait of Hormuz on Wednesday and seized two of them, adding to concerns about continued disruptions to energy supplies through the strategic waterway and supporting elevated Crude Oil prices. This could lead to a significant surge in global inflation and prompt a more hawkish stance from major central banks, including the US Federal Reserve (Fed). Furthermore, a resilient US economic activity dampens expectations for more aggressive policy easing by the US central bank and could further lend support to the USD.

The current market pricing indicates the possibility of only one 25-basis-point (bps) rate cut by the US central bank in 2026. This, however, still marks a significant divergence in comparison to bets for a roughly 60 bps of tightening by the Bank of England (BoE) this year. The expectations were bolstered by the expected pickup in the headline UK inflation to the 3.3% YoY rate in March and stronger-than-expected UK PMIs. Adding to this, Friday's upbeat UK Retail Sales figures further boost chances of an imminent BoE rate hike as soon as the June meeting.

This, to a larger extent, offset the aforementioned negative factors and benefit the British Pound (GBP), which, in turn, should help limit the downside for the GBP/USD pair. Traders now look forward to the release of the revised University of Michigan US Consumer Sentiment Index for some impetus later during the North American session. The focus, however, will remain glued to the incoming geopolitical headlines, which might continue to infuse volatility across the global financial markets and produce some meaningful trading opportunities.

GBP/USD 4-hour chart

Technical Analysis:

The GBP/USD pair shows some resilience below the 100-period Exponential Moving Average (EMA) on the 4-hour chart and rebounds from the vicinity of the 38.2% Fibonacci retracement level of the monthly upswing. Meanwhile, the Relative Strength Index (RSI) at 43.8 sits below the midline, while the Moving Average Convergence Divergence (MACD) indicator holds in negative territory with a flat histogram. This hints that the upside momentum is limited and keeps the near-term tone broadly neutral with a slight bearish bias unless buyers can decisively reclaim nearby resistance marked by the 23.6% Fibo. retracement.

A clear break above the said barrier near the 1.3500 psychological mark would ease immediate pressure and open the door toward the recent cycle high at 1.3599. On the downside, initial support is located at the 100-period EMA at 1.3456, followed by the 38.2% Fibonacci retracement at 1.3439, with deeper cushions emerging at the 50.0% retracement at 1.3389 and the 61.8% level at 1.3340.

(The technical analysis of this story was written with the help of an AI tool.)