The GBP/USD pair attracts buyers for the third consecutive day and climbs to over a one-week high, around the 1.3485 region, during the first half of the European session on Tuesday. The move up is backed by a combination of supporting factors, which backs the case for an extension of the recent bounce from the vicinity of mid-1.3200s, or a three-month trough, touched last week.
US President Donald Trump said on Monday that the US-Israel campaign in Iran may soon come to a conclusion and would be over very soon, boosting investors’ confidence and triggering a goodish recovery in the global risk sentiment. This is evident from a positive tone around the equity markets and undermines demand for the safe-haven US Dollar (USD). Furthermore, the latest development led to an overnight dramatic turnaround in Crude Oil prices, which provides some respite from a potential war-driven surge in inflation. This likely reduces the chances of a hawkish shift from the US Federal Reserve (Fed) and weighs on US Treasury bond yields, dragging the USD further away from a three-month top set on Monday and lending some support to the GBP/USD pair.
The British Pound’s (GBP) relative outperformance could also be tied to the Bank of England (BoE) interest rate repricing. Two weeks ago, traders were pricing in approximately three BoE rate cuts for 2026. As of Monday, those expectations were replaced with a roughly 70% probability of a rate hike by year-end. This marks a swing of 100 basis points (bps) in expected BoE policy direction within two weeks, which turns out to be another factor acting as a tailwind for the GBP/USD pair. That said, hopes that the British government could introduce packages to support households in the face of a new energy cost shock – as hinted by Prime Minister Keir Starmer – raise the odds of a destabilising bond market and might cap the GBP. This warrants some caution for aggressive bullish traders.
In fact, Starmer said that Chancellor Rachel Reeves was in touch with the BoE, which is the clearest sign that the government is worried that measures could trigger unforeseen market reactions. Moreover, Iran’s Islamic Revolutionary Guard Corps (IRGC) dismissed Trump’s remarks as nonsense and said that Tehran, not Washington, will determine when the war ends. Adding to this, Iranian officials warned that regional security would either exist for everyone or for no one. This keeps geopolitical risks in play, which could limit deeper losses for the safe-haven Greenback and contribute to capping the GBP/USD pair. Hence, the focus remains squarely on developments surrounding the US-Israel-Iran war as traders look to this week’s macro data from the US and the UK for short-term opportunities.
GBP/USD 4-hour chart
Technical Analysis:
An intraday move beyond the 23.6% Fibonacci retracement level of the 1.3255–1.3867 downswing was seen as a key trigger for the GBP/USD bulls, though the subsequent move up stalls near the 38.2% Fibo. level. Hence, it will be prudent to wait for some follow-through buying beyond the 1.3500 psychological mark before positioning for additional gains toward the 50% retracement and the 200-period SMA on the 4-hour chart converging in the 1.3560–1.3565 region.
On the downside, initial support stands at the 23.6% retracement at 1.3399, followed by stronger backing at 1.3350, where the recent consolidation base aligns with the latest pullback lows. A sustained move above 1.3565 would strengthen the bullish case, while a drop below 1.3350 would weaken the current upward bias and point back toward the 1.3300 area.
Momentum signals underpin the upside: the Moving Average Convergence Divergence (MACD) line has moved above its signal line in positive territory with a modestly expanding histogram, and the Relative Strength Index (RSI) holds near 60, indicating firm but not overstretched bullish momentum.
(The technical analysis of this story was written with the help of an AI tool.)
