Safe-Haven Flows Favor Dollar as GBP/USD Holds Below 1.3500

Key Moments

GBP/USD trades lower around 1.3500 after a gap-down open during Asian hours on Monday.
Safe-haven demand for the US Dollar increases as US-Iran tensions escalate over port blockades and ceasefire accusations.
Strait of Hormuz tensions support oil prices, reigniting UK inflation concerns and expectations for additional BoE rate hikes.

GBP/USD Under Pressure Amid Geopolitical Strains

GBP/USD trimmed part of its early losses but remained in negative territory around the 1.3500 level during Asian trading on Monday, after opening sharply lower. The pair struggled as the US Dollar (USD) drew strength from renewed safe-haven demand linked to rising tensions between the United States and Iran.

According to a report from The Guardian on Monday, Iran’s Foreign Ministry spokesman Esmail Baghaei described the US blockade of Iranian ports and coastline as an act of aggression and a violation of the ceasefire. Baghaei stated on social media, “By deliberately inflicting collective punishment on the Iranian population, it amounts to a war crime and crimes against humanity.”

Iranian officials had briefly signaled on Friday that the Strait would reopen, but this indication was reversed on Saturday after US President Donald Trump declined to lift the blockade on Iranian ports. Iran’s military said the US had broken the ceasefire by firing on one of Iran’s commercial vessels and warned that retaliation would follow.

Dollar Benefits from Fed Outlook and Risk-Off Sentiment

The Greenback advanced against major counterparts as markets continued to price in a “higher-for-longer” policy stance from the Federal Reserve (Fed). This positioning was driven by persistent inflation pressures combined with tensions in the Middle East.

Market participants are expected to focus on Tuesday’s US Retail Sales report, with consensus pointing to a 1.3% month-on-month increase in March, compared with a 0.6% gain in February.

BoE Outlook Supported by Oil-Driven Inflation Concerns

The Pound Sterling (GBP) may find some offsetting support from the latest flare-up in the Strait of Hormuz, which has pushed oil prices higher. The move in energy markets has renewed concerns about inflation in the United Kingdom and revived expectations that the Bank of England (BoE) could deliver further interest rate increases.

BoE Deputy Governor Sarah Breeden commented on Friday that the ongoing conflict in the Middle East has heightened the risk of overlapping stresses across markets. Breeden added, “The vulnerabilities that have preceded past crises have not disappeared.”

Market Drivers at a Glance

Factor	Impact on GBP/USD
US–Iran tensions and port blockade	Supports USD through safe-haven demand, weighs on GBP/USD
Strait of Hormuz and oil prices	Higher oil prices stoke UK inflation concerns, bolster BoE hike expectations and offer some GBP support
Fed “higher-for-longer” stance	Strengthens USD relative to major peers
Upcoming US Retail Sales (expected 1.3% MoM in March vs 0.6% in February)	Potential catalyst for further USD moves depending on data outcome

Pound Sterling: Structure, Policy and Key Drivers

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.