GBP/USD extended a second day of gains, trading near 1.3200 in Asian hours on Wednesday, even as the US Dollar gathered momentum on robust domestic data and mixed geopolitical developments. Markets priced conflicting messages over a potential US-Iran peace deal after Donald Trump said Iran had agreed to open facilities to nuclear inspections, while Iranian Foreign Minister Abbas Araghchi said substantive nuclear negotiations had not begun. Iran’s chief negotiator also said the Strait of Hormuz would not return to its pre-war status and would remain under Iranian oversight, as Washington-hosted talks between Israel and Lebanon opened in an effort to curb fighting involving Iran-backed Hezbollah.
Support for the Greenback was reinforced by June flash US S&P Global Composite PMI rising to 52.2 from 51.5, and manufacturing output increasing to 55.7 from 55.1, above a 54.8 forecast. Services PMI edged up to 51.3 from 50.7, beating a 51.0 consensus. Sterling held steadier as UK political uncertainty eased following Keir Starmer’s resignation and Andy Burnham’s emergence as frontrunner, with backing from Wes Streeting reducing the likelihood of a prolonged Labour leadership contest.
US Dollar Upside Driven By Data And Geopolitical Uncertainty
We see the US dollar’s strength as the main story, putting a cap on any real gains for the pound. Recent data confirms this, with the US Composite PMI for June hitting a 26-month high of 54.6, pointing to a robustly expanding American economy. This reinforces the idea that the US is outperforming its peers, which will likely keep the Federal Reserve from cutting interest rates anytime soon.
Geopolitical risks are also pushing traders toward the safety of the dollar, especially with ongoing tensions in the Middle East. Any disruption in crucial shipping areas like the Strait of Hormuz historically increases demand for US assets. We believe this backdrop of uncertainty will continue to provide solid support for the dollar over the next few weeks.
Outlook For GBP/USD And UK Market Uncertainty
Looking at the UK, the picture is more complicated. While it’s good news that UK inflation has finally returned to the Bank of England’s 2% target, this creates new uncertainty about what comes next. The market is now divided on whether the central bank will cut interest rates in August or wait until later in the year, leaving the pound vulnerable.
Given this outlook, we are cautious about GBP/USD pushing much higher from its current level around 1.2700. We would consider buying put options to protect against a potential drop, particularly if the pair breaks below the 1.2650 support level. Selling call options with strike prices above recent highs could also be a prudent strategy to capitalize on the pair’s expected inability to rally further.
