HG MARKETS: 

The British Pound (GBP) held firm against the US Dollar (USD) during Monday’s European session, with GBP/USD trading close to weekly highs near the 1.3550 level. The pair found support around the key psychological mark of 1.3500 earlier in the day, as a broadly weaker US Dollar helped maintain upward pressure.

The USD softened amid an improvement in overall market risk sentiment, allowing the pair to remain supported. However, gains remained measured as traders positioned cautiously ahead of a significant week for major central bank developments. Earlier price action showed GBP/USD recovering from recent lows near the mid-1.3400 region, following a temporary pause in the US Dollar’s upward momentum. The greenback had strengthened over the previous sessions but lost traction as markets awaited further developments surrounding ongoing tensions between the United States and Iran.

Geopolitical risks remain a central driver of market sentiment. Despite a temporary extension of the ceasefire, uncertainty persists due to limited progress in negotiations and continued instability around the Strait of Hormuz.US President Donald Trump ordered the US Navy to take action against any vessels attempting to lay mines in the strategic waterway, stating that such threats would be neutralized. In response, Iran has maintained that the complete removal of the US naval blockade remains a precondition for resuming negotiations.

Further escalation was seen last week when Iran reportedly attacked three vessels in the Strait of Hormuz and seized two of them, raising concerns over potential disruptions to global energy supply routes. These developments have contributed to elevated oil prices and sustained volatility across financial markets.Higher energy prices have reinforced concerns over global inflation, which could influence the policy outlook of major central banks, including the US Federal Reserve. At the same time, resilient economic activity in the United States has reduced expectations for aggressive monetary easing.Current market pricing suggests the possibility of only one 25 basis point rate cut by the Federal Reserve in 2026. In contrast, expectations for the Bank of England (BoE) remain relatively hawkish, with markets pricing in approximately 60 basis points of tightening this year.

These expectations have been supported by recent UK economic data, including a projected rise in headline inflation to 3.3% year-on-year and stronger-than-expected PMI readings. Additionally, upbeat UK Retail Sales figures released last week have reinforced the case for a potential rate hike as early as the June policy meeting.The divergence in monetary policy expectations between the Federal Reserve and the Bank of England has provided underlying support to the British Pound, helping to limit downside pressure on GBP/USD despite ongoing geopolitical risks.

Looking ahead, market participants will monitor incoming US economic data, including the revised University of Michigan Consumer Sentiment Index, for further direction. However, geopolitical developments are expected to remain a key driver of price action, with headlines likely to influence near-term volatility across currency markets.