GBP/USD fell about 0.20% on Thursday to around 1.3406, after earlier trading near 1.3455. The move followed doubts over a US–Iran deal and weaker UK business activity, alongside firm US data.
Iran’s leader ordered that near-weapons-grade uranium should not be sent abroad, according to two senior Iranian sources. Oil rose, with WTI up over 2.60% to $101.66 per barrel, while the US Dollar Index (DXY) gained 0.31% to 99.43.
Federal Reserve Signals And Market Reaction
Federal Reserve minutes showed disagreement, with most members favouring holding rates or considering a rise if an energy supply shock lasts. US initial jobless claims for the week ending 16 May fell to 209K from 212K, below the 210K forecast.
S&P Global’s US Manufacturing PMI rose to 55.3 in May from 54.5, the highest in four years. Firms increased inventories to avoid shortages and higher prices.
In the UK, the S&P Global Composite PMI dropped to 48.5 from 52.6, below 51.7. UK Retail Sales are due Friday, while the University of Michigan sentiment reading and the swearing-in of Fed Chair Kevin Warsh are also due.
Technically, GBP/USD is below the 50-, 100- and 200-day SMAs near 1.3431, with RSI near 45. Resistance sits near 1.3431 and 1.3627, while support is near 1.3318 and 1.3159.
May 2025 Context And What It Implied
Looking back at the analysis from this time last year in May 2025, we can see the clear warning signs that set up today’s market. The weak UK PMI data, which had just dipped below 50 to 48.5, was the beginning of the economic stagnation we are now dealing with. Those concerns over geopolitics and an Iran deal proved to be a headwind that ultimately capped the Pound’s strength.
That economic divergence highlighted in 2025 has only widened over the past year. The UK’s latest data showed Q1 2026 GDP growth was a meager 0.2%, while the US economy continues to outperform expectations, with April’s Non-Farm Payrolls adding a surprisingly strong 240,000 jobs. This fundamental weakness in the UK makes it difficult to justify holding long positions in the British Pound against the dollar.
The Federal Reserve’s hawkish stance, which was just a possibility being discussed under a new Chair in May 2025, is now a reality. With US inflation proving sticky around 3.1%, the Fed has maintained higher interest rates, strengthening the dollar’s appeal. In contrast, the Bank of England is facing pressure to cut rates to stimulate the sluggish British economy, creating a clear policy divergence that favors dollar strength.
We also see how the oil market volatility from last year was a temporary shock. WTI crude, which spiked above $101 per barrel on fears surrounding Iran, is now trading much more calmly in the low $80s as global supply has adjusted. This suggests that while geopolitical events cause sharp moves, the underlying economic fundamentals are what drive currency trends over the medium term.
For derivative traders, this environment suggests that selling rallies in the GBP/USD pair remains the prudent strategy. With the pair currently trading near 1.2550, using call options with a strike price around 1.2700 could be an effective way to hedge against any unexpected upside surprises. Meanwhile, buying put options can provide exposure to further downside as we test the key psychological support level of 1.2500 in the coming weeks.
