GBP/USD rallies to seven-week highs above 1.3500 as US Dollar fades
- A new US blockade of the Strait of Hormuz sparked a brief risk-off start before markets tilted back toward peace hopes.
- Tuesday's US PPI for March will be the first inflation print to capture initial price impacts from the Iran war.
GBP/USD opened the new week on the soft side, dipping to a session low near 1.3380, but staged a strong recovery through Monday's session to close around 1.3510, up 0.35% on the day. The move pushed the pair to its highest level since late February, decisively reclaiming the 1.3500 handle for the first time since the sell-off that followed the outbreak of the Iran conflict. The pair has now rallied over 350 pips from the early April low close to 1.3160, erasing roughly half of the decline from the year-to-date high near 1.3870.
President Trump's announcement of a US blockade of the Strait of Hormuz, following the collapse of weekend peace negotiations in Pakistan, initially sparked a risk-off start to the trading week and weighed on Pound Sterling. However, sentiment tilted back through Monday's session as markets grew increasingly hopeful that a resolution will eventually emerge, despite a constant moving of the goalposts on a peace deal. The resulting shift in risk appetite softened the US Dollar broadly and allowed GBP/USD to recover.
Coming up: US PPI inflation data hot in the pipe for Tuesday
Looking ahead to Tuesday, the March Producer Price Index (PPI) will be the first major US inflation print to capture the initial price impacts from the Iran war, which started in late February. Headline PPI is expected to rise 1.2% MoM, up from 0.7% in February, with the YoY reading forecast to jump to 4.6% from 3.4%. Recent Federal Reserve (Fed) minutes showed a growing number of policymakers willing to consider a rate hike if war-driven energy costs feed through to broader inflation, and a hotter-than-expected PPI print could sharpen that debate. Five Fed speeches from Goolsbee, Barr, Barkin, Collins, and Paulson round out a busy Tuesday session.
On the Pound Sterling side, the UK's exposure to the energy supply shock is a growing concern. UK Consumer Price Index (CPI) inflation is expected to rise to between 3% and 3.5% over the coming quarters as the closure of the Strait of Hormuz drives higher fuel and utility costs through to households and businesses. Before the conflict began, UK inflation had been trending lower toward the 2% target, but the war has upended that trajectory and markets have shifted from pricing rate cuts to pricing potential hikes. Rising energy import costs are also weighing on consumer sentiment and business margins, creating a stagflationary risk that could limit Pound Sterling's upside even as the US Dollar weakens.
GBP/USD daily chart
Technical Analysis
In the daily chart, GBP/USD trades at 1.3513, extending a constructive bullish bias as spot holds above both the 50-day exponential moving average (EMA) at 1.3395 and the 200-day EMA at 1.3367. The short-term trend tone remains positive while price respects this stacked moving-average support, although the Stochastic RSI near 71 hints at overbought conditions and suggests upside momentum could be at risk of fatigue in the near term.
On the downside, initial support is now aligned at the 50-day EMA around 1.3395, with the 200-day EMA at 1.3367 reinforcing a secondary demand area below. As long as GBP/USD remains above this moving-average cluster, bulls are likely to defend dips, and any corrective pullback would be viewed as a retracement within the broader uptrend rather than a trend reversal.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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