GBP/USD dives to four-month lows as Middle East tensions lift the US Dollar

The British Pound (GBP) collapses on Monday as Middle East escalations push the US Dollar (USD) higher, while Oil prices extend their gains for the fourth consecutive trading day. At the time of writing, the GBP/USD trades at 1.3184, down by more than 0.50%, hitting a four-month low.

Sterling sinks as oil rises, Fed bets ease, UK outlook dims ahead

Market mood has improved slightly as US President Donald Trump said that the current Iranian regime seems "reasonable." However, he added that if Iran's new regime doesn't open the Strait of Hormuz, the conflict could escalate after the arrival of 3,500 troops to the Middle East.

In the meantime, fears that the Iran war could weigh on the economy pushed traders to trim hawkish bets and increase the chances for a rate cut by the Federal Reserve (Fed) by the end of 2026.

Recently, Fed Chair Jerome Powell crossed the wires, acknowledging that there's tension between the dual mandate's goals. He said that the central bank is committed to getting inflation back to 2% on a "sustained basis," adding that tariff-related inflation likely added 0.5% to 1% to inflation, but it's likely a one-time effect.

Powell said that monetary policy is in a good place, that events in the Middle East affect gas prices, and added that long-term inflation expectations remain in check. Furthermore, commented that officials may need to respond to the impact of the conflict and that, if prices begin to shift inflation expectations, they would be ready to act.

In the UK, some economists see vulnerabilities due to Britain's dependence on imported natural gas. Along with stubbornly high inflation above the Bank of England's target, it paints a gloomy economic outlook, as downside risks for the economy rise.

Last week's economic data revealed that British business activity hit a six-month low, manufacturers' input costs rose at their fastest rate since 1992, and retail sales declined. Meanwhile, traders' eyes are on the release of economic growth data, as they expect the UK's Q4 2025 GDP to remain steady at 1%.

In the US, investors' focus will be on the Consumer Confidence index and the Job Openings and Labour Turnover Survey (JOLTS) for February, as well as speeches by Fed officials.

GBP/USD Price Forecast: Technical outlook 

In the daily chart, GBP/USD trades at 1.3188. The near-term bias is bearish as spot holds well below the clustered simple moving averages around 1.3500, confirming a downside break from the prior range. Price has slipped through the rising support trend line drawn from 1.3035, turning the broader structure from supported to pressured. The downward-sloping resistance trend line from 1.3869 continues to cap bounces, while the rising Fed Sentiment Index highlights a supportive backdrop for the dollar that aligns with the current selling pressure in cable.

Immediate resistance appears near 1.3330, where recent swing highs converge with the descending trend line, followed by 1.3410 and 1.3435 as the next upside hurdles if a corrective rebound develops. On the downside, the latest low at 1.3188 is the first level to watch, with further weakness opening the way toward the psychological 1.3100 area and then 1.3035, where the prior trend-line origin sits as deeper support. As long as price remains beneath 1.3330 and the moving average cluster around 1.3500, rallies are likely to be sold rather than sustained.

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