The British Pound (GBP) reversed course and posted a weekly loss against the US Dollar (USD), with 1.3500 remaining a tough nut to crack for buyers.
British Pound caved into shifting Mideast headlines
GBP/USD danced to the whims and fancies of fluid market conditions, thanks to the fast-shifting headlines around a potential peace deal between the United States (US) and Iran.
Investors yo-yoed between risk-on and risk-off sentiments as US-Iran geopolitical developments dictated markets and high-beta currencies such as the British Pound, while keeping a floor under the safe-haven USD.
The week began on an optimistic note, digesting the weekend’s news that several American media outlets reported that the two countries were close to signing a deal that involves a 60-day ceasefire extension and an in-principle agreement to the reopening of the Strait of Hormuz.
Although US President Donald Trump was quick to clarify that the deal “isn’t even fully negotiated yet, as sticking points remain over Iran’s nuclear program and the Strait.
With further progress on the talks, the USD was sold as inflation concerns eased alongside the retracement in Oil prices, thereby alleviating the pressure on the US Federal Reserve (Fed) to opt for an interest rate hike this year.
In response, GBP/USD extended its rebound to briefly regain the 1.3500 barrier, with thin liquidity adding to the exaggerated move higher.
Heading into mid-week, the US-Iran ceasefire appeared on tenterhooks amid persistent deadlock and fading hopes of a peace deal being reached anytime soon, especially after fresh attacks by the US on Iran. That increased hostilities in the Gulf as Iran also retaliated and warned of “decisive response”, left markets running for cover in the Greenback.
Late Monday, the US Central Command (CENTCOM) carried out fresh self-defence strikes on southern Iran, targeting missile sites and boats allegedly attempting to place naval mines.
In response, Iran’s Foreign Ministry said Iran “will not leave any act of mischief unanswered and will not hesitate in defending the country’s integrity” in a statement on Tuesday, accusing the US of violating the ceasefire.
Early Thursday, US CENTCOM confirmed that they carried out new strikes on Iran, targeting a military site in Bandar Abbas, a strategic port city.
US President Donald Trump said he won’t rush into a deal with Iran, while reiterating that the Strait of Hormuz will be “open to everybody” and that the US will “watch over it.”
Additionally, the US Treasury Department said it has sanctioned the Persian Gulf Strait Authority, the body Iran has set up to manage the Strait of Hormuz.
Against this backdrop, the currency pair accelerated its pullback from the weekly high near 1.3510 and hit eight-day lows of 1.3367 amid intense risk aversion.
However, buyers quickly jumped back in and staged a solid comeback in GBP/USD after the USD got dumped heavily following an Axios report, citing that both sides have reached a tentative 60-day memorandum of understanding (MOU) to extend the ceasefire and begin formal nuclear negotiations.
The report further stated that the agreement still required final approval from President Donald Trump, who reportedly asked for several days to review the proposal.
British Pound recovery stalled as buyers took a breather heading into the weekend, assessing the US-Iran ceasefire report.
Week ahead: What to watch out for
The headlines surrounding the US-Iran truce extension will continue to play a pivotal role in driving the near-term price action in GBP/USD.
However, attention will also remain on the US labor market data, with the all-important May Nonfarm Payrolls (NFP) report due on Friday. Ahead of that, the US ISM Manufacturing and Services PMIs and the ADP Employment Change report will keep traders entertained.
Former Fed Chairman Jerome Powell’s appearance and Bank of England (BoE) Andrew Bailey’s testimony will also be closely scrutinized, which could help reaffirm hawkish bets around both central banks.
GBP/USD technical analysis
In the daily chart, GBP/USD trades just above the 200-day simple moving average (SMA) at 1.3422 but remains capped by a tight band of overhead resistance formed by the 50-day, 100-day and 20-day SMAs between roughly 1.3447 and 1.3482, keeping the near-term bias mildly bearish. The Relative Strength Index (14) hovers slightly below the 50 mark, hinting at waning momentum and reinforcing the idea of a consolidative to softer tone while price stays lodged beneath this cluster of daily averages.
On the topside, immediate resistance is seen at the 50-day SMA around 1.3447, followed by the 100-day SMA at 1.3476 and the 20-day SMA near 1.3482, with the horizontal barrier at 1.3500 adding another cap before the more significant resistance level at 1.3651. On the downside, the 200-day SMA at 1.3422 offers initial support; a break below this area would expose the next horizontal floors at 1.3302 and 1.3180, where buyers might attempt to stem a deeper pullback.
(The technical analysis of this story was written with the help of an AI tool.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
