British Pound recovers further vs USD; GBP/USD holds near daily peak, above 1.3600

GBP/USD attracts fresh buyers following a modest bearish gap down opening to mid-1.3500s.
Easing UK political risks and the BoE’s hawkish signal underpin the GBP, supporting spot prices.
Iran tensions and reviving Fed rate hike bets benefit the safe-haven USD and might cap the pair.

Haresh Menghani FXStreet

The GBP/USD pair fills a major part of its weekly bearish gap opening on Monday and is now looking to extend the momentum further beyond the 1.3600 mark. Spot prices, however, remain below the 1.3635 horizontal resistance and the highest level since February 16, touched earlier this month, warranting caution for bullish traders amid a modest US Dollar (USD) strength.

Against the backdrop of renewed hostilities in the Strait of Hormuz, disagreements over Tehran's nuclear program dampen bets for a US-Iran peace deal. US President Donald Trump and Iran both rejected each other’s peace proposals for ending the war and the gradual reopening of the Strait of Hormuz. This keeps geopolitical risks in play, which, along with hawkish US Federal Reserve (Fed) expectations, turn out to be key factors underpinning the safe-haven USD.

The US-Iran standoff triggers a fresh leg up in Crude Oil prices, fueling inflationary concerns and keeping hopes alive for at least one 25-basis-point (bps) rate hike by the US central bank in 2026. In fact, the CME Group's FedWatch Tool indicates a nearly 20% chance that the Fed will raise borrowing costs by the end of this year. That said, easing UK political uncertainty underpins the British Pound (GBP) and might continue to act as a tailwind for the GBP/USD pair.

In fact, UK Prime Minister Keir Starmer said he would not resign after ‌local election results in Britain confirmed expectations of ‌significant losses for the ruling Labour Party. Furthermore, the Bank of England's (BoE) signal last week that rate hikes could be appropriate if inflation remains persistent turns out to be another factor lending some support to the GBP and contributes to the GBP/USD pair's goodish intraday move up from the 1.3550 horizontal support zone.

The BoE's MPC member Megan Greene said earlier today that the central bank needs to wait to see how Middle East conflicts will flare before making any monetary policy adjustments, and that Inflation risks are skewed entirely to the upside. This, in turn, backs the case for a further appreciating move for the GBP/USD pair, though traders might opt to wait for the release of the latest US consumer inflation figures on Tuesday and the Trump-Xi summit later this 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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