The British Pound (GBP) and the Euro (EUR) both gained ground against the US Dollar (USD) during Asian trading hours on Friday, as market participants increased their bets on further interest rate hikes by the Bank of England (BoE) and the European Central Bank (ECB) respectively [1][2]. The GBP/USD pair strengthened to around 1.3430, supported by the UK government leadership transition and expectations of additional BoE tightening. Andy Burnham is poised to become the next UK Prime Minister after receiving nominations from 322 out of 403 Labour MPs, with his formal appointment anticipated on July 20 [1]. Concurrently, traders are fully pricing in a 25 basis points BoE rate hike by year-end, most likely in December, according to Reuters [1].
The EUR/USD pair posted modest gains around 1.1430, buoyed by a softer USD and heightened expectations for ECB rate hikes. ECB policymakers were presented with projections indicating inflation would remain above target into next year, despite nearly three rate hikes already implemented. The ECB raised rates at its June policy meeting, and traders now anticipate two additional hikes over the next year, partly in response to the potential impact of the Iran war on energy prices [2].
Geopolitical tensions in the Middle East, particularly between the US and Iran, have influenced market sentiment. US forces reportedly struck several locations in coastal Iran, though the US has not confirmed these actions, and Iranian officials reported multiple explosions near the Bushehr nuclear facility [1]. In the Eurozone context, traders increased bets on ECB tightening as an agreement between the US and Iran to end the war appeared at risk, providing support to the Euro [2]. US officials signaled ongoing commitment to a memorandum of understanding with Iran, despite President Donald Trump’s statement earlier in the week that the framework deal was "over" [2].
Both articles note that rising tensions could boost safe-haven demand for the USD, potentially capping gains for GBP/USD and EUR/USD [1][2]. Market participants are closely monitoring developments in the US-Iran conflict for further direction.
CONCLUSION
Both the British Pound and the Euro have strengthened against the US Dollar as markets anticipate further rate hikes from the BoE and ECB, driven by persistent inflation and geopolitical risks. However, ongoing tensions in the Middle East could limit further appreciation of these currencies if safe-haven flows return to the USD. Investors remain attentive to central bank signals and geopolitical developments for future market direction.