The Pound Sterling (GBP) built on the recovery against the US Dollar (USD) and refreshed two-month highs near 1.3600, but sellers quickly jumped in. Despite the late pullback, GBP/USD booked the second straight weekly gain, thanks to another leg higher heading into the weekend.
Pound Sterling retained bullish bias
GBP/USD opened the week with a bearish gap of roughly 45 pips on Monday before filling up the gap to stage a solid comeback. In doing so, the pair broke through the triple top resistance just shy of the 1.3500 level, activating further buying interest.
The two-way business was sponsored by renewed concerns about a re-escalation in the Middle East conflict after the weekend’s Islamabad peace talks between the United States (US)-Iran failed.
The breakdown resulted in US President Donald Trump threatening blockades in the Strait of Hormuz, while reiterating his threats to attack the Iranian civilian energy infrastructure.
Additionally, there were reports that Trump and his advisers were weighing limited military strikes in Iran in the face of the fallout.
The renewed Mideast worries bumped up the US Dollar’s (USD) demand as a safe haven and the world’s reserve currency. The Greenback also capitalized on increased hawkish expectations around the US Federal Reserve’s (Fed) interest rate outlook, fuelled by energy shock-driven higher inflation projections.
However, the tide turned against the buck in American trading on Monday and USD sellers extended control in the balance of the week as market optimism returned on further diplomacy in the Middle East conflict.
Conciliatory remarks from US President Donald Trump and Vice President JD Vance rekindled hopes for another round of US-Iran peace negotiations.
Chatters were also doing the rounds that the US could extend the ceasefire by two weeks. Trump said on Wednesday that US-Iran peace talks could resume in the next two days.
Furthermore, emerging signs of stabilization in the Strait of Hormuz, amid the US naval blockade, and the resultant retracement in Oil prices eased inflation concerns, contributing to the market optimism.
On Thursday, the US President announced a ten-day ceasefire agreement between Israel and Lebanon as peace talks between both sides are likely to resume in Washington next week.
Beyond geopolitics, strong Chinese first-quarter Gross Domestic Product (GDP) data and upbeat US banks’ earnings reports shifted focus back to fundamentals and helped keep the broader sentiment elevated and the USD mired in six-week troughs.
The British Pound also received some support from upbeat UK growth numbers. The Office for National Statistics (ONS) showed on Thursday that the UK GDP rose by 0.5% month-over-month (MoM) in February, following a 0.1% growth recorded in January, while beating the expected +0.1% reading.
However, heading into the weekend, markets turned cautious, questioning the durability of the Israel-Lebanon ceasefire and a lack of clarity on the next round of US-Iran peace talks.
That weighed on the risk-sensitive Pound Sterling’s bullish momentum and triggered a retreat in the GBP/USD pair from two-month highs of 1.3594 set on Thursday.
Moreover, easing bets for a rate hike by the Bank of England (BoE) this year also tempered the pair’s recovery rally.
“Growth is likely to slow regardless into the summer as inflation rises towards 4% beyond July. At a time when private sector wage growth is closer to 3% and, if anything, is biased even lower in the short-term, real wages are set to fall. This is why we’re still not convinced the Bank of England will hike rates this year,” said ING economist James Smith.
Still, improving risk mood helped GBP/USD edge higher and end the week in the upper half of its weekly range. Abbas Araghchi, the foreign minister of Iran, announced on Friday that, in line with the ceasefire in Lebanon, the passage for all commercial vessels through the Strait of Hormuz is declared completely open for the remaining period of ceasefire. Risk flows returned to markets following this development and weighed on the USD, allowing the pair to regain its traction.
Eyes on key UK data and Mideast headlines
In the week ahead, GBP/USD’s bullish potential will be tested by a bunch of high-impact economic data from both sides of the Atlantic amid incoming headlines on the Middle East conflict.
Latest updates on any US-Iran peace negotiations over the weekend and Israel-Lebanon ceasefire would set the tone for markets on Monday as the event calendar remains data-light.
Tuesday will feature the UK labor market report, followed by the US Retail Sales and Fed Chair-Designate Kevin Warsh’s testimony. Warsh is due to testify on his nomination as the Fed Chair before the Senate Committee on Banking, Housing, and Urban Affairs, in Washington.
His comments will be closely scrutinized for the likely policy path he would adopt once he takes over as the Fed Chair from mid-May. The USD will remain highly sensitive to Mideast headlines and Warsh’s commentary, significantly affecting the GBP/USD price action.
The UK March Consumer Price Index (CPI) data will be published on Wednesday, reflecting the energy shock from the war impact feeding into inflation, which could reinforce BoE rate hike bets and rock the Pound Sterling.
Later that day, BoE policymaker Sarah Breeden is set to participate in a fireside chat titled “Clarifying Private Credit’s Impact on Systemic Stability” at Financial Times Live Private Credit Connect, in London.
The UK and US preliminary Manufacturing and Services PMI data will stand out on Thursday, as the weekly Jobless Claims data will also be reported.
Friday’s Retail Sales from the UK will be the only relevant macro data amid a lack of top-tier US statistics.
There will be no speeches from Fed officials throughout the week, as the US central bank enters its ‘blackout period’ on Saturday ahead of its April 28-29 monetary policy meeting.
GBP/USD technical analysis
In the daily chart, GBP/USD trades at 1.3579, keeping a constructive bullish bias as spot holds above the 20-, 50-, 100- and 200-day Simple Moving Averages (SMA) clustered between roughly 1.3375 and 1.3450. This stacking of underlying averages suggests dips are being absorbed, while the Relative Strength Index (14) around 62 points to firm but not yet overstretched upside momentum, leaving room for further gains as long as buyers defend the nearby moving-average floor.
On the topside, initial resistance is aligned at the 1.3600 horizontal barrier, ahead of the next upside hurdles at 1.3700 and 1.3840. On the downside, immediate support is seen at 1.3500, with the 100-day SMA at 1.3451, the 50-day SMA at 1.3426 and the 200-day SMA at 1.3413 forming a dense demand band above the 20-day SMA at 1.3375; a break below this area would be needed to undermine the current bullish tone.
(The technical analysis of this story was written with the help of an AI tool.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
