Sterling Holds Above 1.3200 as Dollar Strength Limits Upside

Key Moments

Range-Bound Trade Persists in Asia

The GBP/USD pair continued to move sideways during the Asian session on Tuesday, holding above the 1.3200 level and staying locked in the trading band that has contained price action for roughly the past two weeks.

Market participants have been factoring in a more restrictive monetary stance from the Bank of England (BoE), reflecting persistent inflation pressures linked to higher energy costs. This backdrop has provided underlying support for the British Pound (GBP). At the same time, the US Dollar (USD) has paused after a strong advance that took it to its highest level since April 2025, offering some additional room for GBP/USD to stabilize.

Geopolitics and Yields Support the Dollar

Despite the USD’s brief consolidation, the broader environment still favors the Greenback. Ongoing geopolitical risks and elevated US bond yields are maintaining a constructive tone for the currency commonly viewed as a safe haven.

In the latest developments in the Middle East, Yemen’s Houthi group said on Monday that it carried out three military operations using ballistic and cruise missiles and drones against airports, an oil facility, and military sites across Saudi Arabia. In addition, media reports indicate that Israel is preparing a potential strike against Iran, either coordinated with the US or acting alone.

Separately, a worsening fiscal situation in France has triggered a continued sell-off in the fixed income market, helping keep US yields near multi-year highs. These dynamics are reinforcing demand for the US Dollar and, in turn, are restricting the topside potential for GBP/USD.

Fed Outlook and Upcoming Policy Signals

Data released last week showed signs that US inflation pressures have moderated. Combined with a weaker US Nonfarm Payrolls (NFP) report, this has scaled back the likelihood of a Federal Reserve (Fed) rate hike in October. Nevertheless, traders are still assigning more than an 80% probability that the Fed will lift rates again before the end of the year, which continues to underpin a constructive medium-term view for the USD.

Against this backdrop, investors appear reluctant to commit to strong directional positions in GBP/USD. Many are waiting for further clarity on the Fed’s policy trajectory, with particular attention on the FOMC Minutes scheduled for release on Wednesday. Speeches from prominent FOMC officials, alongside evolving geopolitical headlines, are also expected to be important drivers for the Dollar and, by extension, for GBP/USD.

Key Technical Levels on the 4-Hour Chart

On a technical basis, the recent sideways movement in GBP/USD can be viewed as a consolidation within a broader downtrend that followed the August swing high. The pair is currently trading below the 100-period Simple Moving Average (SMA) on the 4-hour chart, indicating that recovery attempts remain fragile.