GBP/USD rallied strongly on Monday, closing around 1.3510, up 0.35% for the day, marking its highest level since late February and decisively reclaiming the 1.3500 handle for the first time since the sell-off triggered by the outbreak of the Iran conflict [1]. The pair has now gained over 350 pips from its early April low near 1.3160, erasing roughly half of the decline from the year-to-date high near 1.3870 [1].
The session began with a risk-off tone after President Trump announced a US blockade of the Strait of Hormuz following the collapse of weekend peace negotiations in Pakistan, initially weighing on Pound Sterling [1]. However, sentiment shifted positively as markets grew hopeful for a resolution, leading to broad US Dollar weakness and a recovery in GBP/USD [1].
Looking ahead, the March US Producer Price Index (PPI) data is expected to be a key market mover, with headline PPI forecast to rise 1.2% MoM (up from 0.7% in February) and the YoY reading projected to jump to 4.6% from 3.4% [1]. Recent Federal Reserve minutes indicate more policymakers are open to a rate hike if war-driven energy costs feed into broader inflation, and a hotter-than-expected PPI print could intensify this debate [1]. Five Fed speeches are also scheduled for Tuesday, adding to market volatility [1].
On the UK side, concerns are mounting over the country's exposure to the energy supply shock. UK CPI inflation is expected to rise to between 3% and 3.5% in the coming quarters due to higher fuel and utility costs from the closure of the Strait of Hormuz, reversing the previous downward trend toward the 2% target [1]. Markets have shifted from pricing rate cuts to potential hikes, as rising energy import costs weigh on consumer sentiment and business margins, creating stagflationary risks that could cap Pound Sterling's upside despite US Dollar weakness [1].
Technically, GBP/USD trades at 1.3513, maintaining a bullish bias above both the 50-day EMA (1.3395) and 200-day EMA (1.3367), though the Stochastic RSI near 71 suggests overbought conditions [1].
CONCLUSION
GBP/USD's rally to seven-week highs reflects shifting risk sentiment and broad US Dollar weakness amid ongoing geopolitical tensions. Market focus is now on upcoming US PPI data and Fed commentary, which could further influence rate expectations and volatility. UK inflation risks and stagflation concerns may limit further Pound gains despite the current bullish momentum.