The Pound Sterling (GBP) weakened against the USD on Monday to 1.3370, as it fell below the psychological level of 1.3400, as risk assets came into question after the US air strike on Iranian nuclear sites heightened fears of a wider conflict in the Middle East.
Iran Threatens Retaliation After US Strikes on Nuclear Facilities
Iran’s military spokesperson Ebrahim Zolfaqari said the U.S. will face “heavy consequences” after striking Fordow, Natanz, and Isfahan nuclear sites. While U.S. President Donald Trump claimed the strikes were successful, Israeli intelligence sources reported Iran had relocated key uranium stockpiles before the attack.
Tensions escalated further as Iran’s parliament approved a proposal to shut the Strait of Hormuz, potentially cutting off a quarter of the world’s oil supply. This has sparked fears of surging crude prices, further strengthening demand for the US Dollar as a safe-haven asset.
The US Dollar Index (DXY) surged to a three-week high near 99.40, outperforming all major peers, including the Pound Sterling.
UK Flash PMI Beats Expectations
Despite strong economic data, the Pound remains under pressure. The UK’s flash S&P Global Composite PMI rose to 50.7 in June, beating forecasts of 50.5 and May’s reading of 50.3, indicating modest growth in business activity.
However, the positive PMI report was overshadowed by global risk aversion, oil supply concerns, and geopolitical instability.
BoE Takes Cautious Path, Markets Eye Fed Rate Cut Signals
The Bank of England (BoE) held rates at 4.25%, where they remain, and reconfirmed their “gradual and careful” easing path. In addition, Governor Andrew Bailey stated there was risk in a rising oil price environment and weakening labor market; any easing transition, therefore, would need to exercise patience with a slow transition to more stimulative easing.
On the other hand, in the U.S, FOMC voting member and Fed Governor Christopher Waller stated that he did not rule out a rate cut for July, in light of a weakening trend for the labor market and limited inflationary impact from tariffs. While the dovish commentary increased expectations for a rate cut, the dollar ultimately did not weaken, as investors sought safe assets.
Downside Risks Dominate as War Fears Mount
With the Middle East crisis escalating and Iran threatening global oil supply chains, safe-haven flows into the US Dollar are likely to persist. Even as UK economic data shows resilience, broader risk-off sentiment may keep GBP/USD under pressure.
Analysts warn that if Brent crude crosses $90–$100 per barrel due to disruptions in the Strait of Hormuz, currencies like the Pound and Rupee could suffer further, especially in the absence of aggressive central bank intervention.
About The Author
