Pound Gains as Rate Bets Shift, Geopolitics Cap Rally

Key Moments

GBP/USD Edges Higher but Stalls Near 1.3500

The GBP/USD pair drew fresh buying interest during the Asian session on Friday, interrupting a two-day slide that had driven it to a weekly low the previous day. The recovery, however, faced resistance as the pair struggled to sustain momentum above the psychologically important 1.3500 mark, suggesting that bullish traders remain cautious.

Softer US Inflation Data Dents Fed Hike Bets

Market participants continued to trim expectations for additional Federal Reserve rate hikes after Thursday’s release of a weaker US Producer Price Index (PPI). The report followed a US Consumer Price Index (CPI) print on Wednesday that did not surprise markets and indicated moderating inflation pressures.

The combination of these data points was viewed as giving the Fed greater flexibility to keep interest rates unchanged. This shift in expectations has been exerting pressure on the US Dollar and has provided a degree of support to the GBP/USD exchange rate.

Geopolitical Tensions Support the Dollar and Restrict Pound Upside

Despite softer US data, geopolitical risks have helped prevent a deeper sell-off in the safe-haven Greenback. Uncertainty around the Middle East situation remained a key factor tempering aggressive USD selling.

US Treasury Secretary Scott Bessent said on Thursday that Washington is going to apply measures that have never been seen on Iran. In contrast, a senior IRGC adviser Mohammad Reza Naqdi said that Tehran’s strategy is to make any conflict so costly that future US administrations think twice before taking military action against Iran.

Additionally, the US-Iran confrontation over the Strait of Hormuz continued to underpin a geopolitical risk premium. President Donald Trump again claimed that the US has total control over the strategic waterway, while Iran has pledged to keep the strait closed until all its demands are met. These developments have encouraged caution among USD bears and limited the extent of gains in GBP/USD.

Mixed UK Data Adds to Cautious Tone

Thursday’s macroeconomic data releases from the UK painted a mixed picture, further restraining enthusiasm for the British Pound. The lack of a clear directional signal from the data has contributed to a more guarded stance among investors considering fresh long positions in GBP/USD.

Data Calendar and Market Drivers Ahead

Looking ahead, the UK calendar on Friday does not include any major domestic economic releases expected to significantly move markets. In contrast, the US session features monthly Retail Sales and the Preliminary University of Michigan Consumer Sentiment Index, both of which could influence expectations for US growth and Fed policy.

These indicators, alongside comments from Federal Reserve officials and ongoing geopolitical headlines, are likely to drive USD price action and, by extension, the short-term trajectory of GBP/USD. For now, the pair appears on track to finish the week with only limited net movement.

Technical Picture: Support from the 4-Hour 100-Period SMA

On the 4-hour chart, GBP/USD is holding above the 100-period Simple Moving Average (SMA), keeping the near-term technical bias constructive. The 100-period SMA, positioned near 1.3422, is seen as initial support.

A decisive move below this moving average would signal the potential for a deeper corrective phase. Nonetheless, the broader setup still favors buying on dips as long as spot remains above this pivotal 100-period SMA support.