GBP\/USD edged higher to around 1.3450 in Asian trading on Monday after small losses previously, as the US Dollar softened with risk aversion easing on reports of a US\u2013Iran peace deal and the reopening of the Strait of Hormuz. The New York Times said President Trump described the agreement as ensuring the strait would be \u201cpermanently toll-free\u201d, while Bloomberg cited Pakistan\u2019s Prime Minister Shehbaz Sharif as saying a near four-month war would end with an immediate and permanent halt to military operations on all fronts, including Lebanon. Iran\u2019s National Security Council confirmed a ceasefire, saying final talks would begin once commitments under a memorandum of understanding are met, and Iranian officials called for the maritime blockade to end immediately and entirely.<\/p>\n
In the UK, a 0.1% contraction in April\u2014its first monthly decline since August\u2014has complicated the outlook for Bank of England policy ahead of Thursday\u2019s meeting. The BoE targets inflation of around 2% and is widely expected to keep rates unchanged, with markets watching early inflation and employment data. Separately, the June 18 Makerfield by-election sits alongside the pound\u2019s broader profile in FX: it dates to 886 AD, ranks fourth most traded, accounts for 12% of transactions and averages $630 billion daily based on 2022 data; key pairs include GBP\/USD at 11% of FX, GBP\/JPY at 3% and EUR\/GBP at 2%.<\/p>\n
We are seeing GBP\/USD rise due to significant US dollar weakness following the reported US-Iran peace agreement. This de-escalation is a classic risk-on signal, causing investors to sell the safe-haven dollar. The VIX index, a key measure of market fear, has fallen over 20% to below 13, while Brent crude oil has dropped nearly 8% as the Strait of Hormuz is set to reopen.<\/p>\n
However, we believe this sterling strength is fragile and likely temporary. The UK economy contracted by 0.1% in April, and last week\u2019s inflation figures for May unexpectedly cooled to 2.1%, easing pressure on the Bank of England to act. This underlying weakness in the UK economy provides a strong headwind for the pound.<\/p>\n
Consequently, we anticipate the Bank of England will hold interest rates steady this Thursday, June 18th. Derivative markets now reflect this, pricing in only a 15% chance of a rate hike this week, a dramatic reversal from the 60% probability seen just one month ago. The central bank’s likely pause contrasts sharply with the improving global risk environment.<\/p>\n
This suggests any rallies in GBP\/USD toward the 1.3500-1.3550 area present selling opportunities. With geopolitical news causing implied volatility to fall, buying GBP\/USD put options is now a more cost-effective strategy to position for a potential downturn. We see this as a chance to hedge against a reversal driven by domestic UK factors.<\/p>\n
We are also watching the Makerfield by-election on the same day, as a decisive result could introduce new uncertainty about the UK’s future fiscal policy. Historically, when the Bank of England signals a pause during a period of global risk-on, sterling’s gains against the dollar have been short-lived and capped. This week’s domestic events are likely to reassert themselves as the primary driver for the pound.<\/p>\n","protected":false},"excerpt":{"rendered":"
GBP\/USD nears 1.3450 as dollar eases on US-Iran deal; UK data, BoE pause may cap gains.<\/p>\n","protected":false},"author":103,"featured_media":17031,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[99,9,100,58,97],"class_list":["post-55067","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-central-bank","tag-dollar","tag-inflation","tag-pound","tag-volatility"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t