The GBP/USD pair increased by 0.27% to 1.3600 as tensions rose between Israel and Iran. This rise comes after GBP/USD dipped to 1.3515 on Friday due to regional conflicts. However, by Monday, market sentiment improved, which weakened the US Dollar. The Dollar Index dropped 0.27%, despite ongoing geopolitical tensions, as Treasury yields eased. This decline in the Dollar happened alongside a renewed appetite for risk, giving the GBP/USD pair upward momentum during the North American session.

Focus on Economic Data and Policy Meetings

Monday’s economic news was limited, with only the New York Fed Manufacturing Index falling to -16.0. Traders are now looking ahead to the upcoming US Retail Sales data, the Federal Reserve’s monetary policy meeting, and Fed Chair Jerome Powell’s speech. In the UK, the focus is on the Consumer Price Index and the Bank of England’s policy decision. Market participants see an 84.21% chance that rates will remain unchanged at 4.25%, with a 25-basis-point cut anticipated by September. The technical outlook for GBP/USD is positive, with resistance levels at 1.3631, 1.3650, and 1.37, while support levels are at the 20-day SMA of 1.3540, 1.3515, and 1.35. This week, the British Pound performed the best against the Swiss Franc. The earlier rise in GBP/USD—to 1.3600—followed a sharp drop last week, influenced by geopolitical developments in the Middle East that affected risk sentiment. From Friday to Monday, it wasn’t the events that changed, but how the market adjusted its view on global risks. Investors initially sought safety in the US Dollar, but as the week began, caution shifted to a desire for risk, allowing the Pound to gain again. The Dollar Index’s slight decline, also by 0.27%, was largely due to falling US Treasury yields. This drop in yields reduces the appeal of the Dollar, especially when other central banks are not indicating aggressive rate hikes or economic slowdowns. Lower yields decrease the expected returns from Dollar-denominated assets. As the allure of the Dollar lessens, demand shifts to other investments. This trend is becoming clearer as we near important data releases and policy events. The only US data released on Monday—the New York Fed’s Manufacturing Index—dropped to -16.0. While this figure typically does not significantly impact the forex markets, it does suggest the US economy may be slowing compared to earlier this year. Attention now turns to retail sales and Powell’s upcoming comments, which could change expectations about future rate adjustments.

Market Positioning and Expected Moves

We are paying closer attention to the Bank of England than usual. This week’s inflation data will likely guide traders on the Monetary Policy Committee’s short-term direction. Current market expectations suggest rates will remain at 4.25% this week, although a rate cut could occur by September if economic signs soften. Technically, the pair is testing important resistance levels. Price action around 1.3631 to 1.37 will be crucial. If these levels break convincingly, fast traders may chase the upward movement, especially as positioning remains light after last week’s sell-off. Initial support is found at the 20-day average of 1.3540. Below that, previous lows at 1.3515 and 1.35 offer potential support in case of new selling pressure. Interestingly, the British Pound has shown its strongest performance this week against the Swiss Franc. While this may seem minor, it indicates a growing interest in the Pound. Relationships between different assets are often more telling during times of high volatility. For those involved in derivatives, we’re entering a phase where market direction may depend more on upcoming data rather than just overall sentiment. This requires careful positioning. Options pricing and implied volatilities ahead of central bank announcements and inflation reports could provide quicker and more accurate entry points than direct trades. Short-dated options are particularly worth watching due to ongoing rate uncertainty. Ultimately, it’s not just about monitoring the data, but also how the market interprets it relative to current prices. As we’ve observed, even amid geopolitical tensions, currency movements can revert to being driven by risk preferences and rate expectations—often within hours. Create your live VT Markets account and start trading now.

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