British Pound bulls seem hesitant as Hormuz ship attack supports safe-haven USD

GBP/USD struggles to attract any meaningful buyers as Hormuz risks revive USD demand.
The UK political crisis acts as a headwind for the GBP and contributes to capping the pair.
Receding Fed rate hike bets hold back the USD bulls from positioning for additional gains.

Haresh Menghani FXStreet

The GBP/USD pair sticks to a positive bias for the second straight day, albeit it remains below the previous day's swing high and trades just below the 1.3200 mark during the Asian session on Friday. Furthermore, the fundamental backdrop warrants caution before positioning for any meaningful recovery from November 2025 lows, around the 1.3140 region, touched on Wednesday.

The US Personal Consumption Expenditures (PCE) Price Index report, released on Thursday, highlighted persistent inflationary pressures. However, the signing of an interim US-Iran peace deal earlier this month, and the subsequent fall in Crude Oil prices to the pre-war levels, eased concerns over the inflationary impact of a surge in energy prices. This prompted traders to trim their bets for the US Federal Reserve (Fed) rate hikes this year, which led to the overnight US Dollar (USD) pullback from its highest level since May 2025 and offered support to the GBP/USD pair.

However, reports that Iran’s Islamic Revolutionary Guard Corps (IRGC) attacked a Singapore-flagged cargo ship in the Strait of Hormuz triggered a modest recovery in Crude Oil prices and offered some support to the safe-haven Greenback. Furthermore, UK Prime Minister Keir Starmer's resignation on June 22 and the open Labour leadership contest have put a political risk premium back into the British Pound (GBP). This, in turn, holds back traders from placing aggressive bullish bets on the GBP/USD pair and further contributes to keeping a lid on any meaningful upside for spot prices.

Moving ahead, there isn't any relevant market-moving data due for release from the UK on Friday, while the US economic docket features the revised University of Michigan Consumer Sentiment Index. Apart from this, comments from influential FOMC members and further developments surrounding the Middle East crisis will play a key role in driving the USD demand. This, in turn, could provide some impetus to the GBP/USD pair, which seems poised to register losses for the second consecutive week.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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