The GBP/USD pair has witnessed a rise, reaching 1.3724, the highest level since January 2022. The pair trades around 1.3710, continuing a four-session winning streak, influenced by a fragile US-brokered ceasefire between Israel and Iran, which has improved market sentiment.

US President Donald Trump recently commented on potential US-Iran meetings but questioned the need for them given the damage inflicted on Iran’s nuclear sites by US operations. The US Dollar’s weakening has further supported GBP/USD, which has seen firm gains and reached its highest levels in four and a half years.

Central Banks and Market Activity

Market activity is also shaped by appearances from both Bank of England and Federal Reserve officials. Fed Chair Jerome Powell concluded his semi-annual testimony reiterating a cautious stance due to concerns about economic conditions resulting from the US tariff strategy.

The ceasefire between Israel and Iran has contributed to the upbeat market mood, despite its fragile nature due to ongoing exchanges close to the deadline. The GBP has extended gains for three consecutive days, maintaining levels above 1.3600, supported in part by the Bank of England’s dovish signals.

In the current context, the GBP/USD pair pushing past the 1.3700 mark illustrates how external shocks, when met with aligned central bank messaging, can power mid-term trends. The fragile truce in the Middle East sparked a ripple through risk markets, lifting higher-beta currencies as we saw a marked downswing in USD demand. This reaction is not uncommon during periods of geopolitical cooling, even if the underlying risks remain. While the ceasefire remains shaky, traders have pushed forward, anchoring their outlook to the assumption of at least temporary regional stability. Forward-looking action appears predicated on that expectation holding.

Powell’s testimony closed with a tone that remains defensive in nature. His reluctance to engage in aggressive adjustments gave reason enough for market participants to continue trimming USD longs. While there’s been no direct policy shift, markets are pricing in less urgency from the US Federal Reserve. That implies a repricing of risk in dollar-denominated assets, particularly in the derivatives space, where rate-sensitive instruments have already begun shifting further from earlier pricing zones. We’d expect that to continue — and possibly accelerate — if economic figures in the coming days fail to justify a more assertive stance from the Federal Reserve.

Sterling and Market Trends

Meanwhile, the recent bounce in sterling is not entirely reactionary. Bailey’s prior statements, while not dovish in isolation, came across as favouring patience over pre-emption. That tilted interest rate expectations once again, rebalancing the curve and helping support sterling flows. Traded volumes now reflect broader repositioning — hedges are moving, with shorter GBP risk increasingly favoured as volatility expectations fall. Put differently, upward momentum isn’t purely speculative but tied now to both FX spot and options market reconfigurations.

In our view, the rise past 1.3700 suggests that previous resistance levels are no longer seen as holding back further momentum unless sentiment sours quickly. In the short term, there are few major economic releases that could derail the run unless unexpectedly poor data emerges from the UK or if the ceasefire fails entirely. For those trading derivatives, it’s worth watching how volatility pricing adjusts around near-term expiries. As GBP/USD establishes consistency at these levels, skew is moving tighter, showing decreased appetite for downside protection — another marker of shifting sentiment.

Keep in mind that recent comments from both US and UK officials continue to carry impact. Tariff considerations from Washington and quieter yet persistent inflation pressures in Britain require keeping positions nimble. Monetary authorities, despite their reserve, are not indifferent to wage growth and service inflation domestically. If these rise faster than anticipated, we could see a shift not necessarily in rates, but in rhetoric, which often gives the earlier signal. That’s where some traders may need to review gamma exposure on dated instruments, especially if implieds remain misaligned with realised outcomes over the next two weeks.

We are likely entering a period where carry trades become more appealing. Foreign inflows into sterling could continue so long as the rate narrative remains stable. That said, those with forward exposure should remain cautious around any fresh headlines out of Washington that could reignite dollar demand. As always, staying reactive rather than predictive may offer better flexibility, especially around headline-driven risk.

What stands out in current flows is that GBP strength is not being aggressively faded. This isn’t merely technical momentum, but broader positioning recalibration taking root, often the early sign of more medium-term trend shaping. Call spreads for mid-July show steadily increasing interest, matching a rhythm more strategic than opportunistic. If that’s any indication, upside plays are broadening.

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