GBP/USD held steady after a minor rally the day before, trading around 1.3450 during the Asian session on Friday. The rise in this currency pair can be attributed to a decrease in demand for the safe-haven dollar, following reports that the U.S. and Iran have potentially agreed to extend a ceasefire for another 60 days. If successful, this could open up the key Strait of Hormuz, with Iran reportedly committing to removing all maritime mines within 30 days.
That said, optimism in the market is somewhat tempered after CNN reported that U.S. President Donald Trump has yet to approve these terms. Additionally, according to the Guardian, U.S. Vice President J.D. Vance mentioned that the government is “not there yet” with respect to a final agreement, although he did imply that progress is being made. He also noted that the U.S. is in a position to significantly scale back Tehran’s nuclear program if necessary.
Prior to these geopolitical developments, the U.S. dollar was already experiencing pressure, particularly after the most recent personal consumption expenditure (PCE) report showed inflation figures that were softer than expected. The core PCE index increased by 0.4% month-over-month, while core PCE rose by 0.2%. Still, annual inflation rates remain above the Federal Reserve’s targets of 3.8% and 3.3% respectively.
This more sobering data has helped to alleviate investor worries that the recent energy shock would drastically worsen long-term inflation prospects. Market strategist Joel Krueger from LMAX Group observed that the combination of soft-core PCE data and moderate growth indicators suggests the Fed may adopt a less aggressive stance regarding long-term rate hikes, which usually favors risk assets.
The emerging optimism about negotiations between the U.S. and Iran has also contributed to falling oil prices, further alleviating global inflation worries. Consequently, expectations for aggressive interest rate hikes by the Bank of England have somewhat lessened. This shift in sentiment towards the UK’s monetary policy has been bolstered by recent domestic data showing signs of a cooling labor market, slower-than-expected inflation, and a deceleration in economic activity across the UK.
