The British Pound Sterling (GBP/USD) experienced a sharp rally at the start of the week, climbing toward 1.3450 following news of a US-Iran ceasefire and the reopening of the Strait of Hormuz, which led to a nearly 5% drop in Crude Oil prices and boosted risk-sensitive currencies [1]. However, this move quickly reversed, with GBP/USD returning to near 1.3400, its opening level, as the initial relief proved shallow and the US Dollar strengthened ahead of the upcoming Federal Reserve (Fed) meeting [1].
The ceasefire agreement, described as a preliminary framework with a 60-day extension and further negotiations on Iran's nuclear program, was met with market skepticism due to its tentative nature and the lack of a formal signing until Friday [1]. While the initial reaction saw risk assets rise, the broader market response was moderate, as much of the buying had already occurred in the previous week [1]. The Pound, lacking its own domestic catalyst, was largely influenced by global risk sentiment and subsequently drifted back as the 'buy-the-rumor, sell-the-fact' dynamic took hold [1].
US economic data released on Monday showed the New York Empire State Manufacturing Index falling sharply to 5.7 in June from 19.6, missing the consensus estimate of 14, while Industrial Production edged up just 0.1% in May versus a 0.3% forecast [1]. Despite these soft figures, the Dollar remained resilient, with traders focusing on the upcoming FOMC decision rather than regional data [1]. The Fed is widely expected to keep its target range at 3.50% to 3.75% on Wednesday, but the tone is anticipated to be hawkish, supported by May Nonfarm Payrolls (NFP) of approximately 172K and steady unemployment around 4.3% [1]. Rate futures now price a December hike as more likely than not (near 57%), with the probability of a hold by January dropping to roughly 35% [1].
Technically, GBP/USD is trading in a narrow range, with Monday's close near the 200-period Exponential Moving Average (EMA) at 1.3400 and the 50-period EMA just below 1.3450, indicating a period of compression that often precedes increased volatility [1]. The daily Stochastic RSI is neutral at around 44, suggesting a holding pattern until the FOMC provides further direction [1]. Upcoming US housing data is not expected to significantly impact the pair before the Fed meeting [1].
CONCLUSION
The British Pound's initial rally on geopolitical relief was short-lived, as skepticism over the US-Iran ceasefire and anticipation of a hawkish Fed meeting led to a reversal in gains. With GBP/USD now in a holding pattern, market participants are awaiting the FOMC decision for further direction, while technical indicators suggest potential for increased volatility ahead.