On Monday, global currency markets experienced significant volatility as geopolitical developments and economic data releases shaped investor sentiment. GBP/USD surged approximately 0.5%, rebounding from an early dip near 1.3260 to close around 1.3430, with the session marked by a long lower wick indicating renewed demand below the 1.3300 level. This rally was driven by President Trump's decision to pause planned strikes on Iran's power plants and energy infrastructure for five days, which led to a sharp decline in oil prices and boosted risk-sensitive currencies, including the Pound Sterling. The move followed reports of weekend talks between US and Iranian officials, though Tehran denied any direct negotiations had occurred. The de-escalation allowed GBP/USD to recover after a week dominated by the Bank of England's hawkish hold, where the Monetary Policy Committee unanimously kept rates at 3.75%, contrary to market expectations of a split vote. The BoE warned that the Middle East conflict could push CPI inflation to 3%–3.5% by Q3, prompting markets to price in around 65 basis points of tightening for 2026 [1].
In contrast, AUD/USD faced downward pressure, sliding to about 0.6980 and breaking below the 0.7000 mark for the first time since early February. The pair has dropped over 200 pips from its March high near 0.7120 within a week. Australia's flash PMI data for March revealed a sharp contraction, with the composite index falling to 47.0 from 52.4 in February, primarily due to a collapse in the services reading to 46.6 from 52.8. Manufacturing PMI held just above the expansion threshold at 50.1, down from 51. These figures are the first hard evidence that disruptions in the Strait of Hormuz and rising energy costs are impacting domestic activity, complicating the Reserve Bank of Australia's tightening stance. The RBA recently hiked rates by 25 basis points to 4.10% in a tight 5-4 vote, marking its second consecutive increase, with Governor Michele Bullock emphasizing that inflation was already elevated before the conflict. Markets are still pricing a meaningful chance of another rate hike in May, but continued deterioration in activity data could prompt a reassessment. The upcoming February CPI release is expected to show headline inflation at 3.8% YoY and the trimmed mean at 3.4% [2].
Both articles highlight the Federal Reserve's recent decision to hold rates at 3.50%–3.75%, with projections indicating one cut later this year. Chair Jerome Powell expressed caution regarding the uncertain economic impact of the Iran conflict and noted slower-than-expected progress on inflation. Tuesday's flash PMI readings for March in both the UK and US are anticipated to provide further insight into business activity post-conflict, with UK manufacturing PMI expected at 51.1 (down from 51.7) and services at 53.0 (down from 53.9), while US manufacturing PMI consensus is at 51.6 and services at 51.7 [1][2].
Technical analysis for GBP/USD shows a mildly bullish bias as the pair holds above the 200-period EMA near 1.3350, with immediate support at 1.3400 and resistance at 1.3450. Sustained movement above resistance could target 1.3500, while a break below support would signal a shift toward consolidation. For AUD/USD, the near-term bias is also mildly bullish after rebounding from sub-0.6950 levels, but the price remains capped below the 200-period EMA near 0.7050. Initial resistance is at 0.7030, followed by 0.7050, with a break above potentially opening further upside [1][2].
CONCLUSION
Currency markets responded strongly to geopolitical de-escalation and divergent PMI data, with GBP/USD rallying on risk sentiment and AUD/USD pressured by weak Australian activity figures. Central banks remain cautious, with further rate decisions and inflation data likely to drive future moves. Upcoming PMI and CPI releases will be critical in shaping market expectations and policy outlooks.