Pound-Dollar could recover if the Bank of England strikes a hawkish tone, although Fed guidance remains a key risk.
The Pound to US Dollar (GBP/USD) exchange rate gave back early gains on Monday as renewed hopes for a Middle East ceasefire reduced demand for the safe-haven US Dollar, although Sterling also struggled to find support ahead of this week’s Bank of England decision.
At the time of writing, GBP/USD was trading around $1.3311, down approximately 0.1% on the day.
DAILY RECAP:
The US Dollar (USD) initially weakened on Monday as the US and Iran paused attacks for a third consecutive night, raising hopes that a fresh ceasefire agreement and renewed diplomatic efforts could emerge.
Washington is reported to have halted strikes following warnings from senior military officials that US munitions stockpiles are becoming depleted, while Iran also paused its retaliatory attacks.
The easing in hostilities encouraged a more positive market mood, reducing demand for the safe-haven US Dollar.
However, USD later recovered some ground after reports that Yemen’s Iran-backed Houthi militia had launched drone attacks on Saudi oil transport infrastructure, keeping tensions in the Middle East elevated.
Meanwhile, the Pound (GBP) remained subdued as investors looked ahead to Thursday’s Bank of England (BoE) interest rate decision.
Following the pause in fighting, oil prices eased, reducing expectations that the BoE would adopt a more hawkish tone when policymakers conclude their latest meeting.
With energy prices retreating amid fresh hopes for peace, markets increasingly expect the Bank of England to maintain its cautious wait-and-see approach rather than react aggressively to recent geopolitical developments.
Near-Term GBP/USD Forecast: US Consumer Confidence to Support the ‘Greenback’?
Looking ahead, Tuesday brings the latest US consumer confidence survey.
A forecast improvement in household sentiment could provide the US Dollar with modest support.
However, broader market risk appetite is likely to remain the dominant driver. If the US and Iran continue to refrain from further military action, improving confidence could reduce demand for the safe-haven US Dollar.
For the Pound, a quiet UK economic calendar may leave domestic politics in focus, with lingering concerns over how the government’s recent policy commitments will be funded continuing to weigh on Sterling.
Our currency coverage draws on live market data, official economic releases and published bank research.
