The GBP/USD pair started the fresh week in positive territory, falling to a low near 1.3380, but after Monday’s session it rebounded strongly and ended near 1.3510, up 0.35% on the day. The move pushed the pair to its highest level since delayed February, firmly reclaiming the 1.3500 level for the first time since the sell-off that followed the outbreak of the Iran conflict. The pair is now up more than 350 pips from the early April low near 1.3160, erasing about half of the decline from the year-to-date high near 1.3870.
President Trump’s announcement of the US blockade of the Strait of Hormuz after the failure of weekend peace negotiations in Pakistan initially resulted in a risky start to the trading week and had a negative impact on the pound sterling. However, sentiment soured during Monday’s session as markets became increasingly hopeful that there would eventually be a solution, despite the continued shifting of the goalposts for a peace agreement. The resulting change in risk appetite has generally softened the US dollar and allowed the GBP/USD currency pair to recover.
Coming soon: Tuesday’s US PPI inflation data will be balmy
Looking ahead to Tuesday, the March Producer Price Index (PPI) will be the first major U.S. inflation print to capture the initial impact on prices of the Iran war that began in delayed February. The headline PPI is expected to boost by 1.2% m/m, compared to 0.7% in February, and the year-on-year reading is forecast to boost to 4.6% from 3.4%. Recent Federal Reserve (Fed) minutes have shown that a growing number of policymakers are willing to consider raising interest rates if war-induced energy costs translate into broader inflation, and a higher-than-expected PPI reading could intensify that debate. Five Fed speeches by Goolsbee, Barr, Barkin, Collins and Paulson cap off a busy Tuesday session.
Regarding sterling, there is growing concern about the UK’s exposure to an energy supply shock. UK Consumer Price Index (CPI) inflation is expected to rise to between 3% and 3.5% in the coming quarters as the closure of the Strait of Hormuz increases fuel and utility costs for households and businesses. Before the conflict began, UK inflation was on a downward trend towards the 2% target, but the war changed this trajectory and markets moved from interest rate cuts to potential increases. Rising energy import costs are also weighing on consumer sentiment and business margins, creating stagflation risks that could limit sterling’s growth even as the US dollar weakens.
GBP/USD daily chart
Technical analysis
On the daily chart, GBP/USD is trading at 1.3513, extending the constructive bullish bias as spot trading continues 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 as price respects this cumulative moving average support, although a stochastic RSI near 71 indicates overbought conditions and suggests that growth momentum may be at risk of near-term fatigue.
On the other hand, initial support is currently leveled at the 50-day EMA around 1.3395 and the 200-day EMA at 1.3367, which is strengthening the secondary demand area below. As long as GBP/USD remains above this cluster of moving averages, bulls will likely defend the declines and any corrective pullback will be viewed as a pullback within the broader uptrend, rather than a reversal.
(The technical analysis for this story was written with the facilitate of an AI tool.)
Sterling FAQs
The pound sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. As of 2022, it is the fourth most traded currency unit in the world, accounting for 12% of all transactions, with an average value of $630 billion per day. Its key trading pairs are GBP/USD, also known as “The Cable”, which makes up 11% of FX, GBP/JPY or “The Dragon” as traders call it (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
The most significant factor influencing the value of the pound sterling is the monetary policy pursued by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a constant inflation rate of around 2%. The basic tool to achieve this goal is to adjust interest rates. When inflation gets too high, the BoE will try to contain it by raising interest rates, making access to credit more exorbitant for citizens and businesses. 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 that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to lower borrowing prices so that companies borrow more to invest in projects that generate economic growth.
The published data are used to assess the condition of the economy and may affect the value of the pound sterling. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the GBP exchange rate. A robust economy is good for sterling. Not only will it attract more foreign investment, but it may prompt the BoE to raise interest rates, which will directly strengthen the British pound. Otherwise, if economic data is tender, sterling is likely to fall.
The next significant data release for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only benefit from the additional demand created by foreign buyers willing to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
