The British Pound (GBP) recovered further against the US Dollar (USD) on Monday, with GBP/USD trading above 1.3600 and filling a major part of its weekly bearish gap opening, though it remained below the 1.3635 horizontal resistance and the highest level since February 16, touched earlier this month [1]. The GBP/JPY cross also attracted fresh buyers, filling a modest weekly bearish gap and trading just below the mid-213.00s during the early European session [4].
The recovery in the Pound comes amid easing concerns over UK Prime Minister Keir Starmer’s position, despite the Labour Party's significant losses in local elections across England, Scotland, and Wales. Reform UK was the standout winner in English councils, while the Conservatives remained under pressure and the Greens/Lib Dems gained support in parts of the country. In Wales, Plaid Cymru ended Labour’s long dominance, with Reform also performing strongly [3][4]. OCBC’s Christopher Wong noted that the GBP has held up despite the political noise, with the immediate damage contained as there is no clear leadership or fiscal shock yet, but the results add to the medium-term political risk premium [3].
Geopolitical tensions in the Middle East, particularly renewed hostilities in the Strait of Hormuz and disagreements over Tehran's nuclear program, have kept geopolitical risks elevated. Both US President Donald Trump and Iran rejected each other’s peace proposals, dampening hopes for a US-Iran peace deal and the reopening of the Strait of Hormuz [1][2]. This standoff triggered a fresh leg up in crude oil prices, with Brent returning above $100 per barrel, fueling inflationary concerns and supporting the safe-haven USD [1][2]. The CME Group's FedWatch Tool indicated a nearly 20% chance that the US Federal Reserve will raise borrowing costs by the end of 2026 [1].
The Bank of England (BoE) signaled last week that rate hikes could be appropriate if inflation remains persistent, which, along with easing UK political uncertainty, underpinned the GBP [1][4]. BoE MPC member Megan Greene stated that the central bank needs to wait to see how Middle East conflicts develop before making any monetary policy adjustments, and that inflation risks are skewed entirely to the upside [1]. OCBC highlighted that GBP is mainly driven by USD direction and BoE repricing, with technicals showing mixed signals and key resistance around 1.37 [3].
In the broader FX market, the Japanese Yen (JPY) underperformed due to economic risks from US-Iran tensions and energy supply disruptions, though speculation about Japanese official intervention limited further downside for the JPY [4]. Reports indicated that Japanese authorities intervened in the FX market in early May, and Japan's top currency diplomat stated there are no constraints on intervention frequency [4].
Looking ahead, traders are awaiting the latest US consumer inflation figures on Tuesday and the Trump-Xi summit later in the week for further market direction [1][2]. In Europe, key data releases include Germany’s final consumer inflation data and the Eurozone GDP, as well as an ECB speech by President Lagarde [2].
CONCLUSION
The British Pound has shown resilience amid UK political uncertainty and heightened geopolitical tensions, supported by the Bank of England's hawkish stance and easing concerns over Prime Minister Starmer's leadership. However, medium-term political risks and global developments, particularly in the Middle East and US monetary policy, continue to influence GBP performance. Market participants are closely watching upcoming economic data and geopolitical events for further direction.