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British Pound gains traction above 1.3400 as markets bet on BoE rate hikes

  • GBP/USD gains ground to near 1.3430 in Friday’s Asian session.
  • Andy Burnham is set to become the next UK Prime Minister on July 20.
  • Iranian officials have reported multiple explosions in the country’s south, including near the Bushehr nuclear facility.

The GBP/USD pair gathers strength to around 1.3430 during the Asian trading hours on Friday. The British Pound (GBP) edges higher against the US Dollar (USD) on the UK government leadership transition and growing expectations of further Bank of England (BoE) interest rate hikes.

Andy Burnham’s path to becoming the next UK prime minister looks certain after a vast majority of Labour MPs formally nominated him to be the next party leader. Bloomberg reported on Thursday that 322 of 403 Labour members of Parliament voted for Burnham at the end of the first day of the party’s leadership contest to replace Keir Starmer. Burnham is expected to formally become Prime Minister on July 20.

Traders increased bets on BoE interest rate hikes amid escalating tensions between the US and Iran. Markets are now fully pricing in a 25 basis points (bps) BoE rate hike by year-end, most likely in December, according to Reuters.

Renewed tensions in the Middle East could boost a safe-haven currency such as the Greenback and cap the upside for the major pair. US forces struck several more locations in coastal Iran on Thursday, according to Iranian state media, though the US did not confirm carrying out the attacks. Iranian officials and state media have reported multiple explosions in the country’s south, including near the Bushehr nuclear facility. 

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Euro nudges higher above 1.1400 as traders ramp up their bets on ECB hikes

  • EUR/USD trades with mild gains near 1.1430 in Friday’s early Asian session.
  • ECB saw inflation rising despite nearly three expected hikes, accounts showed.
  • US official said Washington remains committed to a resolution with Iran.

The EUR/USD pair posts modest gains around 1.1430 during the early Asian session on Friday, bolstered by a softer US Dollar (USD). The European Central Bank (ECB) is grappling with elevated core inflation, forcing traders to price in more aggressive tightening despite mixed guidance from ECB officials. 

Accounts of the meeting showed on Thursday that the ECB policymakers gathering last month were presented with projections showing inflation staying above target into next year despite nearly three ECB interest rate hikes. The ECB raised rates at the June policy meeting, and traders expect it to do so twice more over the next year to contain the fallout from the Iran war on energy prices.

Traders raise their bets on ECB rate hikes again in recent days on signs that an agreement between the US and Iran to end the war is in jeopardy. This, in turn, provide some support to the shared currency.

Markets will closely monitor the developments surrounding the US-Iran conflict. Any signs of rising tensions could boost a safe-haven currency and act as a headwind for the major pair. US official on Thursday signaled that it is still committed to the memorandum of understanding with Iran, even though US President Donald Trump’s declared earlier this week that the framework deal to end the Iran war was “over.” 

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Dollar Falls for Third Straight Session

The dollar index fell toward 100.5 on Friday, extending losses for a third straight session as reports that the US and Iran will continue peace negotiations despite a recent escalation in hostilities dampened safe-haven demand for the currency. Lower oil prices also helped ease inflation concerns and reduce expectations of aggressive policy tightening, although markets still largely anticipate at least one Federal Reserve interest rate hike this year. Meanwhile, New York Fed President John Williams said that, among the factors driving inflation in the US, he is most focused on demand fueled by artificial intelligence. Separately, Fed Chair Kevin Warsh unveiled the leadership of five task forces to review the US central bank’s approach to key areas of policymaking, signaling the potential for changes in how the Fed conducts monetary policy. The dollar weakened broadly on Friday, posting its largest declines against the Japanese yen and the New Zealand dollar.

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Offshore Yuan Hits Near 3-Week High

China’s offshore yuan strengthened to around 6.78 per dollar on Friday, extending gains from the previous session to its strongest level in nearly three weeks after the People’s Bank of China signaled greater tolerance for currency appreciation. The central bank set the yuan’s daily reference rate at 6.7989 per dollar, stronger than Thursday’s fixing of 6.8036 and below the closely watched 6.80 threshold for the first time since 2023. A fixing below 6.80 per dollar is widely viewed by investors as an indication that authorities are not seeking to restrain the yuan’s recent appreciation. Attention is now turning to a packed slate of Chinese economic releases due next week, including trade data, second-quarter GDP, industrial production, retail sales, and the unemployment rate. The figures are expected to provide fresh insight into the strength of the economy and could shape expectations for the yuan’s near-term direction.

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Yen Jumps on Intervention Fears

The Japanese yen strengthened past 161.5 per dollar on Friday, erasing all of its losses from earlier in the week as traders remained alert to the possibility of official intervention after the currency weakened to fresh 40-year lows. Market participants are now awaiting intervention data due later this month to determine whether Japanese authorities were behind the sharp but short-lived rallies seen in recent weeks. Investors also assessed data showing Japan’s producer prices climbed 7.1% in June, marking the fastest annual increase since March 2023 amid persistent cost pressures linked to the Middle East conflict and the yen’s sharp depreciation. Meanwhile, oil prices retreated after reports indicated that the US and Iran will continue peace negotiations despite a recent escalation in hostilities. That weighed on the dollar and Treasury yields while easing pressure on the yen by reducing import cost concerns for Japan, which depends heavily on Middle Eastern oil.

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GBP/USD Price – Holds a constructive bullish tone above 1.3400 as UK political risk eases

  • GBP/USD gathers strength to near 1.3405 in Thursday’s early European session.
  • The pair maintains constructive bias, with a mildly bullish RSI momentum.
  • The first upside barrier emerges at 1.3470; the initial support level to watch is 1.3300.

The GBP/USD pair trades in positive territory around 1.3405 during the early European trading hours on Thursday. Fading political uncertainty in the United Kingdom (UK) provides some support to the British Pound (GBP) against the US Dollar (USD).

Following the resignation of Keir Starmer in late June, UK political risk has eased significantly. The formal race to replace outgoing Prime Minister Keir Starmer begins on July 9. Frontrunner Andy Burnham is widely expected to become Prime Minister by July 20.

Chart Analysis GBP/USD

Technical Analysis:

In the daily chart, GBP/USD holds a mildly bullish near-term bias as price sits above the Bollinger middle band and the 100-day simple moving average (SMA). The pair is pressing the upper half of the recent range, with the Bollinger Bands (20, 2) still widening modestly, while the Relative Strength Index (14) at 57.6 suggests constructive but not overextended upside momentum.

On the topside, initial resistance is aligned with the Bollinger upper band at 1.3470, where buyers could hesitate. On the downside, immediate support is provided by the Bollinger middle band near 1.3300, while a deeper pullback would likely be contained by the Bollinger lower band around 1.3130.

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Rupee Pauses Decline After RBI FX Intervention

The Indian rupee hovered around 95.5 per dollar, pausing losses as traders pointed to likely intervention by the Reserve Bank of India through dollar sales to temper volatility. The currency remained under pressure, however, amid renewed geopolitical tensions after fresh US military strikes on Iran and retaliatory attacks on Kuwait and Bahrain fueled concerns over oil supplies. Brent crude remained on the rise, gaining more than 8% over the previous two sessions. Broader market caution also weighed on domestic assets, sending the benchmark 10-year government bond yield up 7 basis points on Wednesday, its biggest one-day rise in over three months, while Indian equities fell 2%, their steepest drop over the same period. Meanwhile, Fed meeting minutes reinforced expectations of tighter US monetary policy, with futures implying a one-in-three chance of a rate hike this month and a two-in-three probability by September.