Sterling continues to strengthen as the ceasefire in Iran triggers widespread selling of the US Dollar. The decline in oil prices, coupled with a positive shift in sentiment, has bolstered the rally of the Pound. The delicate nature of the ceasefire and potential regional assaults may continue to limit upward potential. The Pound Sterling experiences a rally on Wednesday, marking its third consecutive day of gains this week, rising over 1.10% as a result of widespread weakness in the US Dollar. This shift is driven by an enhanced risk appetite following a two-week ceasefire between the US and Iran. As of the current moment, GBP/USD is positioned at 1.3431, following a peak of 1.3484, which marks a five-week high reached earlier today. On Tuesday evening, US President Donald Trump announced a two-week truce, contingent upon Iran’s reopening of the Strait of Hormuz, stating that the US had met its military goals. Trump stated that he has received a 10-point proposal from Iran and considers “it is a workable basis on which to negotiate.” A high-ranking Iranian official indicated that the Strait of Hormuz may be reopened on Thursday or Friday, contingent upon the establishment of a ceasefire framework prior to the meeting in Pakistan. Meanwhile, US President Trump issued a warning regarding the immediate imposition of 50% tariffs on countries supplying military weapons to Iran, with no exceptions allowed.
Nonetheless, the ceasefire appears tenuous, given that Saudi Arabia’s east-west oil pipeline was targeted in a drone strike. Kuwait has indicated that fires erupted at multiple energy sites due to attacks, impacting power stations and leading to “severe material damage to infrastructure facilities, generation units and fuel tanks.” Market participants responded positively to Trump’s decision, leading to a recovery in global equities. Gold achieved a daily high exceeding $4,800, the Greenback saw a decline, and Oil prices experienced a drop. The US Dollar Index, which monitors the dollar’s value relative to six currencies, experiences a decline of 0.70%, settling at 98.79. Major central banks expressed relief regarding the potential for a second wave of inflation triggered by the persistent energy shock attributed to the ongoing conflict. Market participants anticipated that the US Federal Reserve would maintain its current interest rates for the remainder of the year. However, as of the latest analysis, there is an expectation of nearly 10 basis points of easing by year-end, as indicated by Prime Market Terminal.
Later on Wednesday, the Fed will release its last meeting minutes, in which the central bank opted to maintain rates at their current level, amid speculation that Iran’s war could drive prices higher, potentially affecting core goods and services. The swaps market in the UK has reduced its hawkish expectations regarding the Bank of England. Before Trump’s announcement, the markets had already factored in a minimum of two rate increases from the BoE. The situation has evolved since the headline, as traders now anticipate only a single rate increase by year-end. On the daily chart, GBP/USD is positioned at 1.3440, remaining just below a significant grouping of the 50-day, 100-day, and 200-day simple moving averages around 1.3448. This confluence effectively limits upward movement and maintains a bearish outlook in the near term.
The pair is currently positioned above the break area of the downward resistance trend line at approximately 1.3147. This indicates that, despite ongoing broader downside pressure, the recent movement appears to be a consolidation phase beneath significant moving-average resistance. Additionally, the heightened FXS Fed Sentiment Index suggests a continued sensitivity to expectations surrounding US policy. On the topside, immediate resistance is identified at the convergence of the 50-day, 100-day, and 200-day SMAs, which are clustered around 1.3448. A daily close above this range would be necessary to alleviate the prevailing bearish sentiment and pave the way toward the previous uptrend-line break area near 1.3780. On the downside, the primary structural support is identified at the previous downtrend-line break zone near 1.3147. A retreat towards that level would strengthen the perspective that the pair has not succeeded in surpassing its moving-average ceiling.