FX.co ★ Der | GBP/USD

The GBP/USD currency pair has posted an incredibly strong rally in recent weeks, potentially signaling the early stages of a new long-term bullish trend. Despite experiencing two further geopolitical escalations in the Middle East and the current suspension of peace negotiations, bearish traders have proven entirely unable to regain control of the market this week. The geopolitical backdrop has grown increasingly tense after US President Donald Trump revoked the authorization allowing Iran to sell oil under the previous peace agreement and imposed a strict naval blockade on Iranian ports. In a swift retaliatory response, Tehran has once again closed the strategic Strait of Hormuz from its side, effectively terminating the active ceasefire and halting peace negotiations. Despite these severe developments, market participants do not yet believe that a full-scale regional war will resume, largely because similar high-stress standoffs have occurred multiple times in the past, with both sides eventually returning to the negotiating table. Consequently, global financial markets have largely ignored the deterioration in the geopolitical situation, which appears to be a justified reaction under the circumstances. The bullish momentum behind the pound sterling received an unexpected boost earlier in the week when the latest US Consumer Price Index print revealed a cooling of inflation to 3.5 percent. This positive momentum was further compounded after newly appointed Federal Reserve Chair Kevin Warsh declined to promise Congress during his testimony that the central bank would aggressively tighten monetary policy in the near term. This stance triggered another wave of disappointment for the US dollar, erasing any certainty that the Federal Reserve will begin hiking interest rates as early as September. By the time that autumn meeting arrives, traders expect to have a much clearer picture of how the Middle East conflict is evolving, where oil and natural gas prices will stand heading into the high-demand winter season, and how consumer inflation will respond to this highly volatile geopolitical and energy landscape. Because of these lingering uncertainties, there is no guarantee that the Federal Reserve will necessarily push forward with monetary tightening before the end of 2026. This represents a significant shift from earlier in the year, when the market had initially expected US inflation to continue rising in a persistent upward spiral unless the Federal Open Market Committee intervened with aggressive rate hikes. While those inflation concerns had temporarily eased when global oil prices fell toward the 70 dollars per barrel mark, the commodity has recently surged back to trade around 87 dollars. The combination of the latest escalation in the Middle East and the active blockade of the Strait of Hormuz could easily drive prices even higher in the coming weeks. Under a highly pessimistic scenario where energy flows remain severely restricted, crude prices could easily return to the 100 to 120 dollars per barrel range, which would rapidly extinguish any lingering hopes for slowing consumer inflation in either the United States or the Eurozone. Conversely, under a more optimistic scenario where diplomacy prevails, crude prices could comfortably retreat back to the 60 to 70 dollars range, which would dramatically reduce the need for any additional central bank rate hikes this year. From a technical perspective, gold and currency analysts had pointed to potential sterling appreciation toward the 1.3322 level, which is exactly how the price action played out. The pound's upward journey was technically fueled by a series of liquidity sweeps, with the market first capturing liquidity resting below the April 6 low and subsequently taking out stops below the March 31 low. These deep liquidity grabs provided the necessary bullish fuel to support the subsequent move higher. Since the US dollar still lacks any strong, long-term bullish drivers and has already posted an incredibly impressive rally throughout the first half of 2026, it is highly unlikely that bearish traders will be able to easily regain a firm grip on the market. Additionally, the technical picture remains highly supportive of the pound after a prominent bullish imbalance 23 formed last week, a zone that has already triggered two distinct positive buying reactions, while the opposing bearish imbalance 21 has been completely invalidated. Therefore, the technical outlook favors either a direct continuation of the sterling rally or the formation of fresh bullish continuation structures, setting up another leg higher after any minor corrective pullbacks.

At present, although the market remains highly sensitive to any sudden escalation of geopolitical headlines, very few institutional participants are actually positioning for a direct, hot war between the United States and Iran, meaning the prospect of further Federal Reserve monetary tightening remains the only significant fundamental driver currently supporting US dollar bulls. Wednesday's economic calendar did little to alter this dynamic, as neither the release of the US Producer Price Index nor Kevin Warsh's second day of congressional testimony triggered a meaningful reaction from market participants. The pound sterling continues to demonstrate a strong underlying potential for further appreciation against a greenback that appears structurally vulnerable over the long term. Even though geopolitical tensions temporarily reminded the market of the dollar's traditional safe-haven status, the immediate panic of the conflict has already passed its most active phase. While the Federal Reserve officially retains a bias toward raising interest rates in 2026, market participants are highly aware that an overly aggressive policy stance risks severely slowing domestic economic growth and weakening the labor market. It is also widely remembered that Kevin Warsh was selected by Donald Trump to lead the central bank in part because he was expected to champion a more flexible, growth-supportive, and potentially more accommodative monetary policy than his predecessor, Jerome Powell. Under this supportive policy framework, any near-term appreciation of the US dollar is highly likely to be temporary, representing short-term fluctuations rather than a sustainable, long-term trend.