The Pound Sterling (GBP) is trading sideways on the US Dollar (USD), as traders consider the intensifying tensions in the Middle East along with a number of economic and central banks events that we need to be aware of this week. The GBP/USD is trading around 1.3565 and is stuck unable to break above Monday’s range as the markets take the wait-and-see approach.
Geopolitical Tensions Boost Safe-Haven Demand
The wider risk context of the world is still heightened as military conflict continues to escalate between Israel and Iran. Now in its fifth day, the skirmish and subsequent military actions have increased the demand for safe-haven assets like the US Dollar. On Tuesday, reports indicated that the Israeli military had raised missile launches from Iran, further resolved the tensions within the region.
It has also been reported that Iran asked neighboring nations to request US President Donald Trump to facilitate a ceasefire with Israel. The New York Times reported Trump has therefore directed vice president JD Vance and US diplomats to take back-channel approaches to talk with Iranian leaders during this week’s G7 summit.
Consequently, the US Dollar index (DXY) trades in and around 98.15, while maintaining the Greenback with little fresh macroeconomic drivers.
Fed and BoE Policy Decisions in Focus
In addition to geopolitics, investors are preparing for two important central bank decisions this week. The Federal Reserve (Fed) will make its interest rate decision on Wednesday, and the Bank of England (BoE) on Thursday.
According to the CME FedWatch Tool, the Fed is expected to hold rates steady between 4.25%–4.50%. The central bank has little choice now but to hold rates steady as new policies introduced from President Trump will complicate future policy; it would not want to act in haste and potentially hurt the economy. Traders will be looking at the dot plot, updated forecasts for inflation and growth, and Fed Chair Jerome Powell’s press conference to predict when the Fed will cut rates.
The BoE is expected to hold its benchmark rate steady at 4.25%. What is unclear to the BoE is if the cracks in the UK labor market — rising unemployment; job creation slower — made worse by rising inflation will affect the forward guidance statement. Ahead of the decision, traders will look at the UK Consumer Price Index (CPI) for May scheduled for Wednesday. They are expecting a benign reading, which is consistent with a gradual easing in later months.
GBP/USD Technical Outlook
Technically as of present GBP/USD is near-term bullish, and has support from the 20-day Exponential Moving Average (EMA) slope which is bullish near 1.3508. The pair is consolidating below the psychological resistance of 1.3600 and the three-year high of 1.3630.
The 14-day Relative Strength Index (RSI) is still below 60.00 further reinforcing that bullish momentum is not present. The break above this level could potentially lead to further gains. 1.3750 is key resistance as it was the January 2022 high, while the strong support lies at 1.3434, a previous swing high from September 2022.
Conclusion
The GBP/USD exchange rate remains in a sideways range as traders continue to weigh the geopolitical risks against signals from the central banks. With the Israel pendulum shifting to Iran and some key rate decisions from both the Fed and BoE on the horizon, the GBP/USD can expect to see some volatility in the next few sessions. Currently, Pound Sterling looks pretty solid, but the next move (and how far it will go) will likely depend heavily on rate decisions that follow the inflation data from the US and the UK.
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