Pound Stays Rangebound on Policy, Geopolitical Risk FX!

Key Moments

GBP/USD Trapped in Tight Band Despite Weekly Gain Prospects

The GBP/USD pair moved sideways in a confined range during the Asian session on Friday, with neither bulls nor bears taking firm control. Despite the lack of intraday momentum, the pair remained on course for modest gains over the week. Spot prices were constrained near the 100-day Exponential Moving Average and last traded in the 1.3425-1.3430 area, leaving the pair virtually unchanged on the day.

BoE Messaging Divided as UK Political Risks Weigh on Sterling

The British Pound continued to struggle for sustained buying interest as investors grappled with conflicting signals on the Bank of England’s policy path and mounting political uncertainty in the United Kingdom. Swati Dhingra, an external member of the Monetary Policy Committee, indicated that the BoE might not need to raise interest rates if its “scenario B” – described as a case where higher energy prices have only moderate second-round effects – were to play out.

In contrast, fellow external MPC member Catherine Mann warned that elevated inflation late in 2026 could become embedded in wage agreements for 2027, highlighting concerns about persistent price pressures. Adding to the mixed backdrop, Governor Andrew Bailey said on Wednesday that the increase in market interest rates since the start of the Iran war has provided the central bank with more time to evaluate the economic fallout from the conflict.

Even so, market pricing still reflects expectations of at least one BoE rate hike in 2026. Sterling bulls, however, remained cautious amid serious leadership challenges facing UK Prime Minister Keir Starmer. This political backdrop, combined with a firm US Dollar, helped cap any meaningful advance in GBP/USD.

Iran Tensions and Fed Outlook Support the US Dollar

Investors showed little conviction that a peace agreement between the United States and Iran was close, despite some positive headlines. Major disagreements persisted over Tehran’s nuclear program and control of the critical Strait of Hormuz. The Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the strategic waterway remain major sticking points in the negotiations.

These geopolitical risks, together with expectations for a more hawkish Federal Reserve, underpinned demand for the US currency and restricted the topside for GBP/USD. Minutes from the April 28-29 FOMC meeting, released on Wednesday, showed that a majority of policymakers judged that additional policy firming would likely become appropriate if inflation continued to run persistently above the 2% target.

Traders responded by pricing in around a 60% probability that the Fed will raise borrowing costs by the end of the year. This repricing lent further support to the Dollar, allowing it to hold near a six-week high and reinforcing the need for caution among GBP/USD bulls.

US Dollar Performance Against Major Currencies This Week

The following table summarizes the percentage change of the US Dollar against key major currencies this week. According to the data, the US Dollar showed its strongest performance versus the Canadian Dollar.

The heat map illustrates how each currency performed relative to the others. The currency in the left column serves as the base, while the currency along the top row is the quote. For instance, selecting the US Dollar as the base and moving across to the Japanese Yen cell shows the percentage move in USD (base)/JPY (quote).