The GBP/USD is on the rise as the US Dollar weakens due to lower safe-haven demand after an Israel-Iran ceasefire. Fed Chair Powell’s comments suggest a delay in rate cuts, possibly until the fourth quarter. Meanwhile, GBP may face challenges from the BoE’s dovish policy stance. The GBP/USD pair progresses for a third consecutive session, trading near 1.3620 during Asian hours on Wednesday. It approaches a peak at 1.3648, the highest since February 2022. Improved risk sentiment following eased Middle East tensions supports the GBP/USD.

Ceasefire’s Impact on Forex Markets

US President Trump announced a ceasefire between Iran and Israel, sparking hope for an end to their 12-day conflict. Nonetheless, uncertainties remain about the ceasefire’s longevity, prompting a focus on potential nuclear talks and Iran’s enriched uranium’s status. Fed Chair Powell, in his testimony, advocates for delaying rate cuts until later in the year. Kansas City Fed President Schmid suggests waiting to assess the economic impact of tariffs. The BoE officials’ dovish remarks could impact GBP, with BoE Governor Bailey expressing concerns over labour data reliability. Pound Sterling is the UK’s official currency and holds a notable position in global FX trading. The BoE’s monetary policy heavily influences its value, particularly through interest rate adjustments to manage inflation. Economic indicators like GDP, PMI, and trade balances also impact Sterling’s robustness. We’ve seen the GBP/USD pair sustain its upward moves, nudging closer to levels not touched since early 2022. This extended rally comes as risk appetite improves globally, diverting flows away from safe-haven currencies such as the US dollar. The agreement to pause hostilities in the Middle East—though fragile—is acting as a short-term pressure valve on global markets. This, in turn, offers Sterling more breathing room.

Monetary Policies and Market Reactions

The US leadership’s claim that military tensions have abated rings loud for financial markets, yet confidence in the ceasefire’s durability remains low. Even now, we turn our eyes to the possibility of nuclear negotiations restarting and what consequences may stem from Iran’s nuclear programme. A setback in talks or a resumption of conflict would likely reverse some of these supportive mood-driven flows, bringing the dollar back into demand. Until then, we may continue to see lighter volumes favouring risk-driven currency pairs. Over on the monetary policy front, Powell laid out a position that underlined patience. Inflation remains too sticky, and the US job market has retained strength for longer than expected. His comments essentially closed the door on any near-term interest rate reductions, pushing expectations for the first cut possibly toward the latter part of 2024. Supporting that view, Schmid argued that recently imposed tariffs could change growth and inflation dynamics in ways that will take time to show in data. We interpret these messages as a clear stance against premature monetary easing. In contrast, the Bank of England has shown a different tone. Bailey’s remarks regarding the inconsistencies in labour market readings have raised concerns over sustained wage pressures. Without clarity on employment trends, policymakers may feel constrained. If data revisions show weaker job momentum, it adds to the case for sooner rate cuts in the UK. Recent communication from BoE officials has leaned towards caution, revealing their increased discomfort in maintaining tight policy amid questions around economic slack. In the coming weeks, we’re keeping a close eye on the UK’s GDP figures and upcoming PMI surveys. Any softness stands to reinforce dovish expectations. That could limit Sterling’s upside, even if a weaker dollar persists. Meanwhile, from the US, inflation prints and employment reports will be watched for signs of deceleration that would support markets in re-pricing the Fed’s projected timeline for easing.

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