The Pound Sterling (GBP) remained vulnerable while in a bearish consolidation phase against the US Dollar (USD) below the 1.3500 threshold.
Pound Sterling bears rejoice over Middle East conflict
The USD clinched a second consecutive weekly gain against its major currency rivals, as it continued to benefit from the safe-haven flows infused by the escalating war in the Middle East.
Flight to safety remained the global theme as Iranian attacks intensified on the Gulf countries with the American bases. The United States (US) and Israel continued to bomb Tehran and Beirut, respectively, as the war deepened each passing day.
With no end in sight, Iran dug in deep, striking tankers and vessels in the Gulf waters and the Strait of Hormuz, the vital waterway for the passage of about 20% of global oil supplies.
Some of the Gulf countries scaled back oil production, exacerbating supply disruption concerns and fueling tremendous volatility in Oil prices.
Saad Sherida Al‑Kaabi, Qatar’s Energy Minister, told the Financial Times on Friday he expects all Gulf energy producers to shut down exports within weeks, a move he said could drive oil to $150 a barrel.
The dramatic surge in oil prices stoked inflation and economic growth concerns worldwide, rattling markets and bolstering the Greenback’s appeal as a safe haven and as the world’s reserve currency.
The International Energy Agency (IEA) on Wednesday agreed to release 400 million barrels of oil from its members’ strategic reserves, with the US’ share amounting to 172 million barrels. The move was intended to alleviate supply concerns and counter soaring energy prices.
US President Donald Trump offered some oil sanctions relief to Russia to slow the pace of the Oil price rally.
However, Oil prices retained their bullish potential after Iran’s new supreme leader, Mojtaba Khamenei, said in his debut address that the closure of the Strait of Hormuz maritime passage should be continued as a “tool to pressure the enemy,” per CNBC News.
Markets dumped riskier assets such as global equities, the Pound Sterling, etc., amid heightened geopolitical tensions, rising Oil prices and petrodollar dynamics.
Against this backdrop, markets almost priced out a US Federal Reserve (Fed) interest rate cut, further boding well for the USD even though the US Consumer Price Index (CPI) data for February came in line with estimates.
Meanwhile, the Bank of England (BoE) is expected to hold rates at 3.75% next week, squashing bets for a rate hike amid higher inflation projections.The central bank’s likely wait-and-see stance and the UK activity data deepened the British Pound’s plight.
The Office for National Statistics (ONS) said on Friday that the UK Gross Domestic Product (GDP) showed no growth in January, coming in below a 0.2% month-on-month (MoM) increase expected. Industrial production fell 0.1% MoM in January 2026, defying the market forecast of a 0.2% rise while easing from a 0.9% decline in December.
Focus on Middle East crisis, Fed and BoE policy decisions
A blockbuster week awaits the Pound Sterling traders as the Fed and BoE monetary policy announcements could shift their attention temporarily away from the war in the Middle East.
However, markets will stay focused on the oil price action and the geopolitical headlines, scouting for hints on any path for de-escalation.
On the macro data front, the early part of the week is pretty quiet on both sides of the Atlantic until the announcement of the Fed interest rate policy and the quarterly updated projections on Wednesday.
The Fed’s Dot Plot chart and Chair Jerome Powell’s words will be closely scrutinized to help markets gauge the bank’s path forward on interest rates amid heightened geopolitical and economic risks.
On Thursday, the BoE’s rate call will drive the GBP markets ahead of Friday’s data-dry economic calendar. However, the Fed policymakers will return as the ‘blackout period’ draws to an end.
GBP/USD technical analysis
The near-term bias is mildly bearish as spot extends its slide below the 21-day and 50-day Simple Moving Averages (SMAs), which cap the upside near 1.35 and signal fading bullish control. Price also holds beneath the 100-day and 200-day SMAs clustered around 1.34, reinforcing a downside tilt within a softening broader trend. The Relative Strength Index (RSI) has dropped toward 32, approaching oversold territory and highlighting persistent selling pressure, though it also warns of scope for short-covering bounces.
Initial resistance emerges at the recent breakdown area near 1.3340, with stronger resistance at the 1.3400 region where the 100-day and 200-day SMAs form a key barrier. A recovery above that zone would ease immediate downside pressure and open the way toward 1.3520, aligning with the 50-day SMA. On the downside, immediate support stands at 1.3200, followed by 1.3150, where a pause in the decline would be needed to prevent a deeper extension toward 1.3100. Sustained trading below 1.3200 would keep sellers in control of the daily outlook.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
