British Pound struggles to lure buyers; flat lines vs USD amid Iran risks and hawkish Fed
- GBP/USD struggles to capitalize on its recent goodish recovery from over a one-month trough.
- Geopolitical uncertainties and Fed rate hike bets support the USD, capping gains for spot prices.
- Expectations for a less hawkish BoE and UK political chaos undermine the GBP, favoring bears.
The GBP/USD pair seesaws between tepid gains/minor losses through the Asian session on Thursday, though it remains close to the weekly high touched the previous day. Spot prices currently trade around the 1.3430 region, nearly unchanged for the day, as traders seem hesitant to place aggressive directional bets amid mixed signals over the US-Iran peace deal.
US President Trump said on Wednesday that the US is in the "final stages" of talks with Iran. Adding to this, US Vice President JD Vance also struck an optimistic tone and stated that Iran wanted to make a deal. The initial optimism, however, turned out to be short-lived on the back of Trump's warning of more military action if Iran did not agree to a peace deal. Furthermore, major disagreements over Iran's nuclear program and the critical Strait of Hormuz keep geopolitical risk premium in play, supporting the safe-haven US Dollar (USD) and keeping a lid on the GBP/USD pair.
Meanwhile, Minutes from the Federal Reserve’s (Fed) April 28–29 meeting revealed that a majority of policymakers believe that policy firming would likely become appropriate if inflation continued to run persistently above the 2% target. This reaffirms market bets that the US central bank will raise borrowing costs by 25 basis points (bps) in 2026 and turns out to be another factor underpinning the USD. This marks a significant divergence in comparison to diminishing odds for immediate policy tightening by the Bank of England (BoE) and contributes to capping the GBP/USD pair.
Traders pushed back their expectations for the next BoE rate hike to December following the release of softer-than-expected UK consumer inflation figures on Wednesday. The UK Office for National Statistics (ONS) reported that the headline Consumer Price Index (CPI) inflation eased to 2.8% over the year in April from 3.3% in March, missing estimates for a reading of 3%. This, along with an unexpected rise in the UK Unemployment Rate to 5.0%, backs the case for a cautious "hold" on interest rates by the BoE for the remainder of 2026 amid a deepening UK political crisis.
Traders now look forward to BoE Governor Andrew Bailey's appearance for some impetus later during the US session. In the meantime, the flash PMIs from the UK and the US will be looked upon to grab short-term trading opportunities. Nevertheless, the fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for an extension of the GBP/USD pair's recovery from the 1.3300 mark, or the lowest level since April 8, touched on Monday.
Pound Sterling FAQs
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).
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.
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.
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.
