The British Pound Sterling (GBP) weakened sharply on Monday, falling to a fresh multi-week low near 1.3370 against the US Dollar (USD). The decline came as market sentiment turned risk-averse following a series of US airstrikes on Iranian nuclear sites, prompting a rush into traditional safe-haven assets, particularly the US Dollar.
This geopolitical shock, combined with persistent demand for the USD fueled by the Federal Reserve’s cautious stance and uncertainty over global tariffs, pushed the GBP/USD pair decisively lower. The US Dollar Index (DXY) climbed to a fresh three-week high around 99.40, reflecting broad-based strength across major currencies.
Despite this, the Pound’s losses were somewhat cushioned by better-than-expected UK PMI data and the Bank of England’s (BoE) gradual policy easing tone, signaling that while the short-term trajectory favors the USD, the longer-term outlook for GBP may not be entirely bearish.
Iran’s Retaliation Threat Rattles Markets, Drives USD Demand
In response, Iranian military spokesperson Ebrahim Zolfaqari declared that the US had expanded the scope of Iran’s legitimate targets and warned of “heavy consequences” for Washington’s aggression. Iranian leaders described the strikes as illegal, provocative, and a declaration of war.
Adding to the tension, Iran’s Parliament proposed closing the Strait of Hormuz, one of the world’s most critical oil trade routes, a move that would dramatically reduce global oil supply. This development further unsettled global markets and increased safe-haven flows into the USD, gold, and US Treasuries.
As fears of a broader regional war grow, risk-sensitive currencies like the Pound Sterling have suffered, especially against the Dollar, which remains the preferred shelter in times of geopolitical unrest.
UK PMI Beats Expectations but Fails to Lift the Pound
While geopolitical concerns dominated sentiment, Monday’s release of UK flash PMIs for June provided a glimmer of domestic optimism.
- The Composite PMI rose to 50.7, beating expectations of 50.5 and up from May’s 50.3.
- Both the services and manufacturing sectors recorded growth, pointing to underlying resilience in the UK economy.
- The PMI data signals modest expansion, reflecting healthy demand and improving supply chain dynamics.
However, the market largely overlooked these results due to the overwhelming influence of geopolitical and monetary policy forces. Investors were more concerned with the broader risk environment than UK-specific fundamentals.
BoE Maintains Gradual Policy Path Amid Global Uncertainty
Last Thursday, the Bank of England kept interest rates steady at 4.25% and reiterated its commitment to a “gradual and careful” policy easing approach.
Governor Andrew Bailey acknowledged signs of softening in the labor market and rising energy prices, especially as tensions in the Middle East threaten oil supplies. However, he also stressed the BoE would remain flexible and data-dependent, avoiding any premature policy pivot.
The BoE’s outlook contrasts slightly with the more cautious stance of the US Federal Reserve, which has emphasized that tariffs and inflation risks could delay rate cuts well into 2026–2027.
Still, Bailey’s signals were insufficient to offset safe-haven demand for the USD in the wake of heightened global risk. For the Pound to regain traction, investors will need clearer signs of risk stabilization or a dovish surprise from the Fed.
Fed Officials Signal July Rate Cut, but Dollar Strength Persists
In contrast to last week’s broader hawkish Fed projections, Governor Christopher Waller made dovish remarks on Friday, indicating support for a July interest rate cut if current conditions persist.
Waller downplayed the inflationary impact of Trump-era tariffs, saying they were likely a “one-off price level shock” rather than a persistent inflation driver. He also warned against waiting for a crash in the labor market before easing policy, saying the Fed should be proactive.
Despite Waller’s dovish comments—rated 3.4 on FXStreet’s FedTracker AI scale—the market focus remains on the possibility of extended high rates, particularly as inflation remains above target and global risks abound. This has allowed the USD to maintain strength, even when some Fed voices lean dovish.
Currency Heatmap: USD Outperforms Across the Board
The currency heatmap released Monday reveals that the US Dollar gained across nearly all major currencies, particularly:
- +0.83% against GBP
- +0.96% against NZD
- +0.72% against AUD
Despite the UK’s upbeat PMI figures, the GBP was one of the day’s weakest performers, reflecting the dominance of global risk sentiment over domestic data.
Technical Outlook: Pound Bears Eye 1.3300
From a technical standpoint, the GBP/USD pair broke below the psychological 1.3400 level and tested 1.3370 support, which marks a critical juncture. A sustained drop below could expose the pair to:
- Next key support at 1.3320, followed by the 1.3270–1.3250 zone.
- On the upside, resistance lies at 1.3450 and 1.3500, where selling interest may resurface.
As long as the pair trades below 1.3400, bearish momentum remains intact, particularly amid unresolved geopolitical tensions and strong USD flows.
What’s Next for Pound ? All Eyes on Iran and US PMI Data
Going forward, traders will focus on two key themes:
- Iran’s potential military or economic retaliation, particularly any move to close the Strait of Hormuz or launch direct attacks, which would push risk aversion higher and keep GBP/USD under pressure.
- US flash PMI data at 13:45 GMT, which could offer clues on the Fed’s next policy move. Strong PMI results would support the USD, while weak readings might dent its dominance.
Until then, GBP/USD remains highly sensitive to headline risk, with direction driven more by geopolitics and Fed tone than UK fundamentals.
