- GBP/USD attracts some sellers for the third straight day as renewed US-Iran tensions benefit the USD.
- Rising Oil prices fuel inflationary concerns and temper Fed rate cut bets, further underpinning the buck.
- The BoE’s more hawkish outlook could offer some support to the GBP and help limit losses for the pair.
The GBP/USD pair trades with a negative bias for the third straight day on Tuesday, though it lacks follow-through selling and holds above the 1.3500 psychological mark during the Asian session. Moreover, the mixed fundamental backdrop warrants some caution before positioning for an extension of the recent pullback from the 1.3655-1.3660 area, the highest level since February 16, touched last Friday.
The US Dollar (USD) attracts safe-haven flows amid the US-Iran standoff over the Strait of Hormuz and diminishing odds for a rate cut by the US Federal Reserve (Fed) in 2026. A firmer USD, in turn, is seen as a key factor exerting some pressure on the GBP/USD pair. However, the Bank of England’s (BoE) relatively more hawkish stance acts as a tailwind for the British Pound (GBP) and helps limit the downside for spot prices.
In the latest developments, Reuters reported that there was a fire and an explosion on a South Korean-flagged vessel in the strait. US President Donald Trump warned that Iran would be blown off the face of the earth if it attacks American vessels. Meanwhile, Iran attacked the United Arab Emirates (UAE) with a barrage of missiles and drones after the US announced a program called Project Freedom to guide ships stranded in the Gulf.
This raises the risk of a further escalation of tensions in the Middle East and triggers a fresh leg up in Crude Oil prices, fueling inflationary concerns and bets for more hawkish central banks, including the US Federal Reserve (Fed). The outlook further underpins the USD and weighs on the GBP/USD pair. Meanwhile, the BoE signaled that rate hikes could be appropriate if inflation remains persistent, which should support spot prices.
Traders now look forward to Tuesday’s US economic docket – featuring the release of US ISM Services PMI, JOLTS Job Openings, and New Home Sales data. This, along with speeches from influential FOMC members, might provide some impetus to the buck and the GBP/USD pair. The focus, however, remains glued to the US Nonfarm Payrolls (NFP) report on Friday and geopolitical headlines, which might continue to infuse volatility.
