The GBP/USD pair is showing notable gains as the week kicks off, continuing a slight recovery from Friday’s three-week low. This marks the second day of upward movement, with prices moving above the mid-1.3300s during the Asian trading session, largely due to a significant dip in the US dollar.
The USD index, which gauges the dollar’s performance against a range of currencies, is moving away from the near monthly highs it tested last week. This shift comes amidst renewed hopes for a diplomatic resolution to the ongoing conflict between the U.S. and Iran. Notably, late on Friday, the U.S. paused its bombing campaign after 13 nights of strikes on Iranian targets, leading Tehran to stop its retaliatory attacks on American allies in the region.
U.S. Ambassador to the United Nations, Mike Walz, mentioned that while troops remain deployed, President Donald Trump is keen on allowing some space for negotiations. As a result, traders have begun to unwind some of the geopolitical risk premium, which is reducing the appeal of safe-haven assets. Additionally, recent events have caused a sharp decline in oil prices, easing inflation worries and hindering expectations for interest rate hikes from the Federal Reserve, which further impacts the dollar.
On the other hand, limitations on shipping routes through the Strait of Hormuz and Bab el-Mandeb are helping to curb oil price declines. USD bears might opt to hold back on aggressive actions until the outcome of the much-anticipated two-day FOMC meeting on Wednesday. Investors are keen to gather insights on the Fed’s policy trajectory, which, in conjunction with unfolding geopolitical issues, could influence the dollar and subsequently bolster the GBP/USD pair.
