Both the British Pound (GBP) and Japanese Yen (JPY) experienced notable moves against the US Dollar (USD) at the start of the week, driven by heightened geopolitical tensions following US military action in Iran and shifting central bank expectations. According to both sources, US forces struck two Iranian launchers on Larak Island, prompting Iran to retaliate with ballistic and cruise missile launches from multiple locations, including Tehran, Lorestan, Karaj, Khorramabad, Shiraz, and southern Iran toward the Strait of Hormuz [1][2]. This escalation has led traders to price in a geopolitical risk premium, favoring the USD as a safe-haven asset [1][2].
For the GBP/USD pair, the Pound rebounded from over a one-week low but lacked strong bullish momentum, trading below the mid-1.3500s during the Asian session [1]. The move was supported by UK Chancellor John Healey's emphasis on fiscal discipline ahead of the Autumn Budget on October 28 [1]. However, expectations for the next Bank of England (BoE) rate hike have been pushed back to 2027 from late 2026, while hawkish comments from US Federal Reserve Chair Kevin Warsh have increased market bets for a Fed rate hike in September [1]. Technical analysis shows GBP/USD facing resistance at the 100-period SMA (1.3559) and 23.6% Fibonacci retracement (1.3579), with support at 1.3521 and deeper levels at 1.3474, 1.3427, and 1.3360 [1].
The USD/JPY pair traded around the 160.00 mark, just below a one-month high, with the fundamental backdrop favoring further USD strength [2]. The Yen's underperformance is attributed to concerns over Japan's public finances, expansionary fiscal policies, and a wide interest rate gap with the US [2]. The Bank of Japan raised its short-term policy rate to 1.00% in June, the highest in 31 years, and markets see an 80% chance of another hike in September [2]. In contrast, the Fed's benchmark rate stands at 3.5%-3.75%, and Warsh's hawkish remarks have reinforced expectations for a September hike, maintaining a rate gap of 250-275 basis points [2]. Technical analysis indicates USD/JPY consolidating just under the 200-period SMA (160.34), with support at 159.61 and 159.12, and resistance at 160.64 and 162.10 [2].
Both articles highlight that the upcoming US macro releases, particularly the Nonfarm Payrolls (NFP) report on Friday, will be a key focus for markets [1]. The overall sentiment remains cautious, with the path of least resistance for the USD seen as upward, and traders advised to be wary of bullish bets on GBP/USD and to expect continued JPY weakness unless intervention or policy changes occur [1][2].
CONCLUSION
Geopolitical tensions stemming from US-Iran military actions have reinforced the US Dollar's safe-haven appeal, pressuring both the British Pound and Japanese Yen. Central bank policy divergence and upcoming US economic data are likely to keep the USD supported in the near term. Market participants remain cautious, with technical and fundamental factors suggesting limited upside for GBP and continued vulnerability for JPY.