The Pound Sterling gained against the US Dollar, rising above 1.3600 with an increase of over 0.65%. This occurred during a time when efforts for peace between Israel and Iran failed. President Trump had warned about the conflict, but despite these tensions, investors remain eager to take risks. Federal Reserve Chair Jerome Powell suggested that rate cuts might be put off as the central bank assesses the effects of tariffs. He pointed out that the tariffs introduced this year could raise prices and influence economic growth, although these effects might be temporary or long-lasting.

Federal Reserve Commentary

Some members of the Federal Reserve had supported a rate cut, but recent discussions indicate that these cuts could be delayed. Cleveland Fed member Beth Hammack mentioned this possibility, a sentiment echoed by Atlanta Fed President Raphael Bostic. In the US, home prices rose by 2.7% in April compared to last year. In the UK, the CBI Industrial Trends Survey showed slight improvement, with less expected decline in manufacturing output. Governor Dave Ramsden discussed the weak labor market impacting his decisions at the Bank of England’s meeting. Meanwhile, the Pound was stronger against major currencies, increasing by 1.53% against the US Dollar. Technical analysis suggests an upward trend for GBP/USD, although geopolitical risks could still cause fluctuations. The first support level is at 1.3550.

Market Dynamics and Economic Indicators

The recent increase in Sterling, pushing GBP/USD above 1.3600, shows how market dynamics are currently favoring the British currency, at least for now. The weaker Dollar contributed to this rise, even as tensions in the Middle East escalated and ceasefire efforts stumbled. Still, risk appetite in the markets remains fairly strong. The support for Sterling didn’t arise solely from UK news but from a mix of resilience and positive economic data. Across the Atlantic, Powell’s comments weren’t surprising; he indicated that the Federal Reserve is not rushing into rate cuts. He expressed concerns about tariffs leading to inflation, which could increase prices without ensuring a quick economic rebound. Fed members who were previously open to rate cuts, like Hammack and Bostic, now seem more cautious. Their reluctance reflects a broader hesitation within the Fed to loosen policies in the current climate. They prefer to let economic data guide their decisions carefully. We must also recognize some softer economic signals coming from the US. House prices rose 2.7% year-on-year in April. While that’s not dramatic, it indicates that the housing market isn’t drastically cooling. Meanwhile, industrial indicators in the UK suggest that contractions are slowing, supporting the notion that the Pound may be more stable compared to the Dollar in the near future. Ramsden’s comments about weaknesses in the labor market show he is cautious about supporting immediate rate hikes at the Bank of England. This caution balances the overall optimism about British manufacturing showing some stability. Overall, these statements suggest a careful approach, focusing on persistent inflation rather than making hasty moves. For those tracking short-term price changes, GBP/USD remains above key technical support around 1.3550, which is essential if there’s a pullback. The currency pair seems to have some upward momentum, but its future direction could depend on whether geopolitical tensions increase or decrease. With volatility slightly below levels that typically cause broader re-evaluations, we should keep an eye on real yields and any updates from the Fed for potential shifts. Derivative traders should note this period of stability in Sterling, as expected rate futures have changed. The odds for early easing in the US have decreased, reflected in options positioning and risk premium adjustments in US assets. Concurrently, forecasts for the UK’s rate path are shifting, influenced by mild economic data and mixed signals from policymakers. In the upcoming sessions, we will focus on UK wage data and US inflation numbers—both can significantly influence front-end movements. This, in turn, can impact swaps and futures pricing, especially where narratives about policy divergence strengthen or weaken. Create your live VT Markets account and start trading now.

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