The Pound Sterling (GBP) staged a late rebound from near three-month lows against the US Dollar (USD), testing the critical 1.3440 supply zone.
Pound Sterling resilient on the hawkish BoE hold
GBP/USD remained in a downside consolidation mode for a major part of the week, hanging close to a three-month low of 1.3219 reached a week ago.
However, Pound Sterling buyers attempted some tepid recovery before jumping back into the game in the second half of the week.
Heightened tensions surrounding the Middle East war dominated markets in the early part of the week, following the weekend attacks by the United States (US) on Iran’s Kharg Island, a key oil hub.
Meanwhile, the Wall Street Journal (WSJ) reported late Sunday that the White House plans to announce that multiple countries have agreed to form a coalition to escort ships through the corridor, adhering to US President Donald Trump’s calls to the allies to help secure the Strait of Hormuz.
Japan’s reluctance and Europe’s rejection of Trump’s appeal to help secure the Strait also sapped investors’ confidence, squashing any reopening hopes.
On Wednesday, Israel and Iran attacked energy infrastructure in the region in a tit-for-tat game, as the war deepened.
Iran attacked gas facilities in Qatar, the United Arab Emirates (UAE) and Saudi Arabia, retaliating to Israel’s strikes against Iran’s South Pars offshore natural gas field shared with Qatar.
Meanwhile, Reuters reported, citing sources, the Trump administration is considering deploying thousands of additional US troops to the Middle East.
Intensifying turmoil in the Middle East bolstered the US Dollar’s (USD) safe-haven appeal and weighed down on the risk-sensitive Pound Sterling.
The Greenback’s strength gained further traction after the Fed delivered a hawkish hold decision late Wednesday.
The Fed held key policy rates steady, as widely expected, with the Dot Plot chart still projecting one rate cut for 2026 and 2027.
Fed Chair Jerome Powell struck a cautious tone in a press conference, noting that “the forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation.”
“In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy, he added.”
The tide turned against the USD in the second half after the Euro (Euro), Japanese Yen (JPY) and the British Pound (GBP) rose sharply in reaction to their respective monetary policy announcements.
The Pound Sterling was rescued by the Bank of England (BoE) on Thursday after the central bank held the Bank Rate steady at 3.75% in a unanimous vote, the first time that all members voted the same way since September 2021.
During the post-policy meeting press conference, BoE Governor Andrew Bailey said that he would be monitoring developments “extremely closely” and that the bank “stands ready to act” to ensure inflation returns to the 2% target level.
Following the BoE policy announcements, the GBP/USD jumped over 1% from 1.3250 to challenge offers above 1.3450.
The Greenback also faced headwinds amid the revival of hopes for the reopening of the Strait of Hormuz.
In a joint statement released on Thursday, the leaders of the United Kingdom, France, Germany, Italy, the Netherlands, Japan and Canada agreed to join appropriate efforts to ensure safe passage through the Strait of Hormuz.
They also called on Iran to cease immediately its threats, laying of mines, drone and missile attacks and other attempts to block the Strait to commercial shipping.
Watch out for Middle East war, UK inflation and PMI data
After the central bank blitz and escalation of the Middle East conflict, a raft of preliminary Manufacturing and Services Purchasing Managers Index (PMI) from both sides of the Atlantic drops in at the start of the week on Tuesday.
Monday is devoid of any significant data releases from the US and the UK, as traders will digest the weekend headlines on the Middle East war, especially after Treasury Secretary Scott Bessent’s comments on the unsanctioning of the Iranian oil that’s on the water and the potential seizure of Kharg Island.
On Wednesday, the UK Consumer Price Index (CPI) will stand out. However, the inflation report could have a limited impact on the British Pound as it is for February and won’t reflect the energy-driven inflation shock due to the war.
Thursday will feature the mid-tier weekly Jobless Claims data from the US, followed by the speeches from a couple of BoE policymakers – Alan Taylor and Megan Greene.
The UK Retail Sales on Friday will be the only high-impact data release for the pair.
These economic indicators should play a secondary role compared to the geopolitical developments in the Middle East. Also of note will be speeches from the Fed officials.
GBP/USD technical analysis
In the daily chart, GBP/USD trades at 1.3328. The near-term bias is mildly bearish as spot holds below the 20-, 50-, 100-, and 200-day Simple Moving Averages (SMAs) clustered around 1.34–1.35, while the flatter 100- and 200-day SMAs near 1.34 cap any immediate recovery attempts. This configuration signals fading upside momentum within a broader consolidative backdrop, with the Relative Strength Index (RSI) retreating toward the mid-40s and reinforcing a downside tilt in daily momentum.
Immediate resistance emerges in the 1.3400-1.3440 region, where the 100-day and 200-day SMAs are located. A break above this region could open the door for an extended recovery toward 1.3500 (50-day SMA) and 1.3600 (static level). On the downside, initial support is seen at 1.3200 (static level), with a break exposing the lower horizontal supports at 1.3040 (static level) and 1.3000 (static level, round level).
(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.
