The GBP/USD pair is experiencing selling pressure for the fifth consecutive day, continuing a notable decline from last week. The spot price has dropped to around 1.3300, marking its lowest level since April 8, as it appears vulnerable against the strength of the US dollar.
The ongoing geopolitical tensions in the Middle East are supporting the US dollar, especially with increasing expectations that the Federal Reserve may raise interest rates in 2026. US President Donald Trump has issued a stern warning to Iran, stating that “the clock is ticking,” implying that immediate action is necessary or else dire consequences will follow. Additionally, reports indicate that Israel and the US are preparing their militaries for potential joint operations against Iran.
Disagreements surrounding Iran’s nuclear ambitions and tensions in the Strait of Hormuz have dampened peace negotiations, causing oil prices to reach a two-week high. This situation has reignited inflation concerns, leading to a stronger market sentiment regarding a more hawkish stance from the Fed. Traders are now assessing a greater than 50% probability that the US central bank will increase borrowing costs by year-end, according to CME Group’s FedWatch tool. This scenario is pushing US bond yields higher, benefiting the US dollar and thus negatively impacting the GBP/USD pair.
On the other hand, the British pound is facing downward pressure from political uncertainties at home, particularly following heavy losses for the ruling Labor Party in recent local elections. Calls for British Prime Minister Sir Keir Starmer’s resignation are growing, and the recent resignation of UK Health Secretary Wes Streeting last Thursday reflects a deepening crisis within the party, indicating that the pound could further decline in the near term.
As the week progresses, traders will be on the lookout for important macroeconomic indicators from the UK, starting with Tuesday’s jobs report. Then on Wednesday, the latest inflation data will emerge, which is expected to impact the Bank of England’s outlook on interest rates and might provide some support for the pound. However, the prevailing fundamental conditions seem to favor bearish sentiment towards the GBP/USD.
