The Pound Sterling (GBP) falls to near 1.3370 against the US Dollar (USD) during European trading hours. This weakness is due to an increased demand for US Dollars as tensions between the United States and Iran escalate.

The US Dollar Index (DXY) hits a three-week high around 99.40, driven by safe-haven demand. Iran has threatened retaliation after the US attacked Tehran’s nuclear facilities, heightening geopolitical risks.

Impact Of Geopolitical Tensions

US President Donald Trump claimed the destruction of Iranian sites, although reports suggest Iran shifted its uranium stockpiles before the attack. Iran may close the Strait of Hormuz, potentially affecting global Oil supply.

The UK sees better-than-expected S&P Global Purchasing Managers’ Index (PMI) data, with the Composite PMI at 50.7. Despite this, GBP underperforms against the USD but still outperforms other currencies.

The Bank of England maintains a gradual monetary easing stance, keeping rates at 4.25%. Fed Governor Christopher Waller supports a potential interest rate cut, noting limited tariff impacts on inflation.

The GBP/USD pair remains bearish, staying below the 20-day EMA at 1.3477. Key support is seen at 1.3250, with resistance at 1.3630. The USD benefits from positive PMI data, indicating expansion in the private economy.

The Pound’s latest move beneath 1.3370 signals a clear shift in trader appetite, largely skewed towards seeking safety. In this case, it’s the US Dollar drawing fresh attention. That jump in the Dollar—shown by the DXY climbing to 99.40—isn’t just a technical move; it’s fuelled by rising anxiety in markets tied back to events in the Middle East. More precisely, Washington’s recent actions in Tehran have escalated the situation enough to send money flowing into what people see as lower-risk assets.

Waller’s mention of a rate cut puts a different kind of energy into Dollar dynamics. Although the US economy has brushed off higher tariffs with barely a flinch, the idea of more flexible monetary policy sits warmly with equity markets. Still, for those in rate-sensitive products, it throws in a new complexity. Treasury pricing, forward rate expectations, and yield curve reactions are all going to need another look. Small shifts here can punch well above their weight.

Now, this movement in the greenback is also set against a surprisingly stable PMI print from Britain. That said, even good UK data isn’t changing the broader positioning. Sterling might be outperforming many counterparts, but versus the Dollar, it remains pinned down. That reflective reluctance—where strong output doesn’t quite translate into currency strength—tells its own story.

Oil Supply And Market Volatility

Looking at price action, the 20-day EMA still acts like a ceiling for bulls, not a floor. Until Sterling moves convincingly above that 1.3477 threshold—and holds there for more than a single session—upside positioning could keep taking on water. The 1.3250 zone below needs to be monitored closely, not only as a technical reference but as a broader threshold. A break beneath that, especially on volume, would probably trigger further hedge flows into Dollar-length instruments.

For now, energy markets are the wild card. With Iran hinting at closing the Strait of Hormuz, any tangible interference in oil supply chains could sharpen volatility in both commodities and currencies. That wouldn’t be confined to WTI and Brent; we expect secondary demand for dollars to rise, not from traders chasing yield, but from institutions needing collateral and global firms hedging import strains.

In the derivatives space, strategy will need to stay agile. While implied volatilities haven’t blown out yet across currency contracts, directional bias has started consolidating. The bearish skew on GBP/USD options has widened slightly, and we’ll likely see higher short gamma interest if support levels start to wobble. Calendar spreads with nearer-term maturities may offer visibility and manageable exposure, especially with event risk lined up over the next fortnight.

Meanwhile, at Threadneedle Street, there’s more patience than ambition. The Bank remains steady at 4.25%, softly signalling comfort with where things stand. What that means for us is a background of policy stasis—a kind of quiet void where Sterling drifts more from external pushes than internal developments.

So while macro fundamentals in the UK aren’t particularly soft, they’re being overruled for now. Until headline pressure from overseas recedes, and unless the US shifts stance more decisively, rangebound strategies may prove more sensible than outright directional calls. Timing and compression strategies deserve a second glance, especially in light of widening risk events and the current asymmetry in sentiment.

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