The Pound Sterling has surged to nearly 1.3630 against the US Dollar, benefiting from improved market sentiment following a ceasefire agreement between Israel and Iran. The optimism in global markets has reduced demand for safe-haven assets like the US Dollar, causing a drop in the US Dollar Index to approximately 98.13 from around 99.40.

GBP/USD experienced a turnaround after reaching a monthly low, with renewed bullish momentum taking it close to 1.3600 in European trading. Market participants are now paying attention to Federal Reserve Chairman Jerome Powell’s testimony. The announcement of the Israel-Iran ceasefire positively influenced market mood, adding pressure on the US Dollar.

Continued Risk On Sentiment

Amid continued risk-on sentiment, the US Dollar faces challenges in attracting interest, allowing GBP/USD to maintain its upward trajectory. Meanwhile, US stock index futures have risen by 0.7% to 1.2% during the day, while the USD Index declined by approximately 0.25%.

The recent move in GBP/USD, driven by broader appetite for risk, reflects renewed confidence in global markets, particularly as geopolitical tensions ease and liquidity shifts back into risk assets. Sterling’s climb towards 1.3630 was primarily aided by improved sentiment after the ceasefire news, which broadly reduced the attraction of the US Dollar, traditionally seen as a safe place when tensions rise. This change in outlook sparked a retreat in the USD Index, now hovering lower around 98.13, having started around 99.40.

When conflict risk diminishes, as we’ve seen in the Middle East, traders typically rotate capital out of defensive positions and into currencies or instruments linked to more cyclical growth. That’s what we’re observing here, especially with the bounce in futures from US indices, lifting between 0.7% and 1.2%. The pressure on the Dollar shouldn’t surprise anyone closely watching the DXY move — it has responded in line with the shift in sentiment.

Powell’s upcoming testimony, however, brings complexity to short-term positioning. If he emphasises inflation risks or hints at less scope for rate cuts, it might temporarily support the Greenback, particularly on the short end of the curve. We’re not expecting policy pivots to come through comments alone, but tone and context will still matter for calibration heading into the next set of data.

Sterlings Upward Trajectory

In this type of environment, the goal isn’t chasing breakouts but recognising zones in which pricing can consolidate or accelerate further. Sterling has already reversed from a monthly low, and the speed of this rebound suggests that positioning was overly skewed before the ceasefire headlines hit. Now that past support levels have converted to near-term demand, upside bias remains intact unless incoming Fed commentary alters rate expectations.

For those active in short-dated derivatives, implied volatility pricing should be scrutinised. Overnight vols heading into Powell’s appearance might be bid, and if realised moves disappoint, we may see post-event premium decay. That’s worth considering if you’re building strategies around gamma exposure into the session.

Looking further out, if global markets continue to favour risk, and macro releases don’t deliver upside surprises for the Dollar, then it wouldn’t be unreasonable to see GBP/USD testing the 1.37 handle in coming sessions. But much depends on Powell, surprise data releases, or shifts in cross-asset sentiment — particularly in Treasury yields or emerging market FX responses.

Rate differentials are still marginally in favour of the US over the UK, but they’ve narrowed recently. That compresses carry and reduces inertia for holding long-Dollar bets. Swaps markets can adjust fast, so it helps to track repricing dynamics closely, especially in the belly of the curve.

In the present setup, directional bias is still upward for Sterling. But any volatility spikes could open windows for contrarian positioning — particularly if rate-sensitive sectors lead a reversal in equities or if Federal Reserve officials cohere around a more hawkish path. Traders should be alert to relative moves across DXY components to confirm reactive pressure rather than one-off flows.

We continue to monitor these catalysts closely, especially the cadence of macro data, policy commentary, and adjustments in option markets that hint at shifts in large positioning.

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