British Pound struggles despite easing risk aversion

• GBP/USD drops despite a weaker US Dollar as Trump's paused strikes boosted US-Iran diplomatic hopes.
• President Trump stated Middle Eastern nations requested extra time to finalize a deal with Iran.
• The BoE signaled possible rate hikes if US-Iran conflict uncertainties drive up inflation.

GBP/USD holds losses after three days of gains, trading around 1.3470 during the Asian hours on Monday. The currency pair may regain its footing as the US Dollar (USD) struggles under easing risk aversion, driven by hopes of a diplomatic breakthrough between the United States (US) and Iran following reports that US President Donald Trump held off on planned strikes.

In a post on Truth Social, US President Trump stated that Iran and other Middle Eastern nations requested additional time to finalize an agreement, a proposed deal that would lead to the "immediate, complete, and total" reopening of the vital Strait of Hormuz while effectively eliminating Iran's nuclear threat.

However, high market uncertainty persists as Iranian officials swiftly dismissed the claims. According to Iran's Mehr news agency, Iranian officials characterized Trump's assertion that Tehran sought a pause as "nothing but a new lie," emphasizing that the Iranian armed forces remain on high alert and fully prepared for any eventuality.

The Bank of England (BoE) opted to leave interest rates unchanged last week, though it kept the door open for potential rate hikes due to ongoing uncertainty surrounding the US-Iran conflict. Despite the pause, money markets continue to price in a 25-basis-point rate increase by the end of the year, according to Prime Terminal data.

BoE tone softens as Bailey downplays urgency on next hike

Analysts at Scotiabank characterize the latest BoE decision as signaling "softened hawkishness," noting that Governor Andrew Bailey "played down the urgency around timing of the next rate hike" even as the MPC delivered a 6–3 vote to hold rates, with three policymakers calling for a "25bpt increase." This combination of a split vote and more cautious guidance reinforces the impression of a central bank that remains alert to inflation risks but is in no rush to tighten policy aggressively.