Renewed hostilities between the United States and Iran have heightened market uncertainty, leading to increased demand for the US Dollar as a safe-haven asset during Thursday's European trading session [1][2]. The GBP/USD pair declined by 0.2% to near 1.3400, pressured by fears of a resumption of the Middle East war after the exchange of attacks between the US and Iran [1]. Iran’s Islamic Revolutionary Guard Corps (IRGC) asserted control over the Strait of Hormuz, warning that any disruption would be met with a 'decisive response' and requiring vessels to coordinate with the Iranian Navy, a stance at odds with US President Donald Trump’s demands for a permanent peace deal and the reopening of Hormuz [1].
The US Dollar Index (DXY) rose to around 99.30, reflecting the Greenback’s broad strength against major currencies [1]. The Japanese Yen also trimmed losses against the US Dollar, with USD/JPY trading at 159.45 after reaching monthly highs at 159.65, but remaining close to the 160.00 level, which is considered a threshold for potential intervention by Japanese authorities [2]. US Treasury yields increased, further supporting the US Dollar, while oil prices rebounded from lows, adding pressure on the Yen [2].
Market attention is now focused on the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index for April, scheduled for 12:30 GMT on May 28, 2026 [1][2]. The consensus expectation for the PCE is 3.8% year-over-year, up from the previous 3.5% [1][2]. A higher-than-expected reading is generally seen as bullish for the US Dollar and could provide further justification for Federal Reserve hawks to advocate for additional monetary tightening [2].
In Japan, Bank of Japan Governor Kazuo Ueda cautioned that a temporary energy shock could become persistent if it influences wages, expectations, and price-setting behavior, supporting market hopes for further BoJ policy tightening after the June 15 meeting [2]. However, markets are awaiting the Tokyo CPI release later in the day for confirmation [2].
Technical analysis for GBP/USD indicates a near-term bearish bias, with the pair trading below the 20-day Exponential Moving Average (EMA) at 1.3461 and immediate support at 1.3333. The Relative Strength Index (RSI) remains in the 40.00-60.00 zone, signaling investor indecisiveness [1].
CONCLUSION
Renewed US-Iran tensions have driven safe-haven flows into the US Dollar, pressuring both GBP/USD and USD/JPY pairs. Market participants are closely watching the upcoming US PCE inflation data, which could influence expectations for further Federal Reserve tightening. The overall market sentiment is cautious, with high impact expected from the forthcoming economic releases.