British Pound holds steady near 1.3450 amid US-Iran deal uncertainty

GBP/USD flatlines around 1.3450 in Monday’s early Asian session.
Trump is seeking edits to the US-Iran deal.
BoE’s Bailey says no rush to raise interest rates amid Iran war uncertainty.

Lallalit Srijandorn FXStreet

The GBP/USD pair trades on a flat note near 1.3450 during the early Asian trading hours on Monday. The British Pound (GBP) stabilizes in a sideways consolidation mode following a highly volatile week. Traders will closely monitor the developments surrounding the US-Iran peace deal and the US ISM Manufacturing Purchasing Managers Index (PMI) report later in the day.

The BBC reported on Sunday that US President Donald Trump has sought to change several terms of a proposal to end the US-Israel war on Iran. The changes are related to the Strait of Hormuz and the removal of highly enriched uranium.

Meanwhile, Iranian Foreign Minister Abbas Araghchi said that talks and message exchanges with Washington were ongoing but stressed that no assessment of negotiations could be made until a clear outcome was reached. The lack of progress in the US-Iran agreements could lift a safe-haven currency such as the US Dollar (USD) and create a headwind for the major pair in the near term.

Former Federal Reserve (Fed) Chair Jerome Powell said the US central bank would damage public trust that’s required to support a strong and stable economy if any president were free to dismiss Fed officials over policy disagreements, per Bloomberg. His comments came as the US's highest court is deliberating the fate of Fed Governor Lisa Cook, whom US President Donald Trump has sought to fire over unproven mortgage fraud allegations.

Markets have scaled back expectations for a rate hike from the Bank of England (BoE) following softer inflation data, an unexpected rise in the Unemployment Rate to 5.0% for April, and easing political concerns. BoE governor Andrew Bailey said on Friday that the UK central bank is in no rush to raise interest rates while the outcome of the Iran war remains uncertain and the UK’s growth rate stays weak.

“We have to monitor the situation in the Middle East and how it affects the UK economy and inflation very closely and adjust policy as required,” said Bailey.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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