The GBP/USD exchange rate rose to 1.3500, recovering from a low of 1.3369, influenced by remarks from Federal Reserve Governor Michelle Bowman supporting a potential rate cut in July. The UK Flash Services PMI improved to 51.3, while the US S&P Global Manufacturing PMI for June scored 52, but the Services PMI dipped from 53.7 to 53.1.

Tensions in the Middle East added to market volatility as the US conducted strikes on Iran’s nuclear sites, leading to Iran’s parliament’s decision to close the Strait of Hormuz. Despite these tensions, the White House seeks a diplomatic resolution. Iran’s response included missile strikes against Israel, with further actions anticipated shortly.

Technical Analysis

GBP/USD’s upwards trend faces resistance at the 20-day SMA of 1.3508, with expectations to challenge 1.3550, 1.3600, and the YTD high of 1.3631. A close below 1.3500 might lead to a pullback, targeting the 50-day SMA at 1.3399. During this timeframe, the British Pound performed most strongly against the New Zealand Dollar.

With the pair edging back towards the 1.3500 mark, it’s clear that recent comments from Bowman caught the market off guard, offering some renewed momentum to sterling just as it appeared to stall. The market interpreted her openness to a July rate cut not merely as a shift in tone but as a necessary adjustment in light of lingering disinflationary forces and the mixed economic signals coming from the US. It’s no surprise then that we saw renewed offer interest on the dollar side, effectively resetting positioning ahead of the core PCE print.

In tandem, the UK’s marginal uptick in services activity suggests some resilience, albeit fragile. While the Flash Services PMI breaching the 50 line signals mild expansion, it’s hardly compelling enough to alter monetary policy forecasts. Still, by not deteriorating further, the data helped keep downside pressure on cable contained. We’ve seen this dynamic before: weaker US data paired with mildly supportive UK releases tends to favour a bullish short-term tilt in GBP/USD. The way this plays out will depend heavily on whether July’s BoE meeting introduces any surprises or if they remain committed to their wait-and-see approach.

Market Sentiment

That said, the broader market mood is unsteady. Escalations across the Strait of Hormuz and the wider Gulf region aren’t just pushing up crude – they’re beginning to influence currency flows. Asset allocators had been sheltering in the safety of the US dollar earlier in the week, but Washington’s ambivalence between military action and diplomatic outreach complicates the safe haven narrative. The initial reaction in oil and gold suggests enough market participants see diplomacy winning out – for now – but the tail risk of further retaliation makes this far from settled.

For now, the path higher for cable looks intact, but only if the pair maintains ground above its short-term moving average. The 20-day SMA, now flirting with 1.3508, serves as the first real litmus test. We’re watching it closely – a clean break above there and the pair could test the 1.3550 level rather swiftly. The next batch of resistance looms just above at 1.3600, then again at 1.3631 – the high for the year. Each of these marks comes with its own cluster of optionality and potential gamma exposure that could lead to exaggerated price swings depending on positioning into month-end.

If, however, the price retreats and isn’t able to hold above the 1.3500 handle, that might accelerate a shift in tone. In that case, the focus moves straight to the 50-day SMA, currently at 1.3399. If that breaks, we may need to reassess risk appetite in the context of cross-driven selling and a retreat to safer assets.

Elsewhere, sterling has done comparatively well against the Kiwi, and that doesn’t strike us as an accident. There’s a clear policy divergence and differing growth prospects between the UK and New Zealand at this point, and we’ve noticed a growing appetite to pair sterling strength against commodity-linked currencies under pressure from declining global demand. We anticipate more traders highlighting this cross trade as macro themes play out across July.

These next few weeks look decisive for trend continuation or rejection, especially as macro data in both countries arrives alongside updates on the geopolitical front. While fundamental direction appears slightly clearer, price action will decide whether existing positioning has gone too far—or not far enough.

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