GBP/USD gives up part of its earlier gains near the 1.3600 level, slipping back toward the 1.3550 area on Tuesday. Despite the pullback, the pair remains well supported after extending its rally for a seventh consecutive session, reaching its highest levels since late February during the European trading hours.
The recent upside momentum has been largely driven by a weaker US Dollar, which came under pressure amid improving global risk sentiment. Optimism surrounding a potential de-escalation in tensions between the US and Iran has encouraged investors to shift toward riskier assets, reducing demand for safe-haven currencies.
Although weekend talks between Washington and Tehran failed to deliver a breakthrough, markets remain hopeful that diplomatic efforts will continue. US Vice President JD Vance expressed cautious optimism, noting that progress has been made and that a broader agreement remains achievable if negotiations advance further. Reports also suggest that both sides may resume talks in the coming days, keeping alive hopes for a resolution.
This backdrop has pushed the US Dollar to its lowest levels since early March, further supporting GBP/USD. Additionally, easing Oil prices—linked to expectations of reduced geopolitical tensions—have helped temper inflation concerns, reviving speculation that the Federal Reserve could consider rate cuts later this year.
However, uncertainty still lingers. Developments around the Strait of Hormuz remain a key risk factor, as disruptions to energy supply could quickly reignite inflation fears. US President Donald Trump also announced the start of a naval blockade in the region, while Iran issued threats targeting key ports, limiting further downside in Oil prices.
On the UK side, expectations for tighter monetary policy continue to support the Pound. Markets are now pricing in multiple rate hikes from the Bank of England in 2026, creating a divergence with the Fed’s outlook and reinforcing bullish sentiment for GBP/USD.
Looking ahead, traders will focus on the US Producer Price Index (PPI) and speeches from Federal Reserve officials for fresh direction. Overall, the fundamental backdrop remains supportive, suggesting that any dips in GBP/USD could attract buying interest.
Trade Idea:
Buy GBP/USD on dips near 1.3520 targeting 1.3650. Weak USD and BoE hawkish expectations favor upside, though geopolitical risks may cause short-term volatility.