The Pound Sterling (GBP) extended its winning streak against the US Dollar (USD) for the third consecutive day, trading around 1.3400 during Asian hours on Wednesday. This appreciation was driven by a decline in safe-haven demand for the USD following an agreement between the United States and Iran on a two-week ceasefire, which improved overall market sentiment [1]. US President Donald Trump announced the ceasefire late Tuesday, stating it was contingent on Iran reopening the critical Strait of Hormuz. A White House official also confirmed Israel's participation in the ceasefire [1].
An Iranian official revealed that negotiations with the US will take place in Islamabad, Pakistan, to finalize the ceasefire details, aiming to confirm Iran’s battlefield achievements politically within a maximum of 15 days. The meeting is scheduled to begin on Friday and may be extended if both sides agree [1]. Despite the ceasefire agreement, Iranian attacks continue in the Middle East and Israel, with missile alerts sounding and the Israeli military reporting missiles launched from Iran towards Israel. The Qatar Defence Ministry confirmed that its armed forces intercepted a missile attack targeting Qatar [1].
The easing of oil prices following the ceasefire has dampened inflation pressures, potentially giving the Bank of England (BoE) room to resume monetary easing. Prior to the conflict, markets had priced in two to three rate cuts for 2026, but these expectations were erased by the energy-driven inflation shock. The current environment may allow the BoE to reconsider easing if inflation pressures continue to subside [1].
The Pound Sterling is the fourth most traded currency globally, accounting for 12% of all FX transactions and averaging $630 billion a day according to 2022 data. Its value is primarily influenced by BoE monetary policy, which targets price stability with a steady inflation rate around 2%. The BoE adjusts interest rates to manage inflation, with higher rates generally supporting GBP and lower rates indicating economic slowdown [1].
CONCLUSION
The GBP/USD pair has benefited from improved market sentiment following the US-Iran ceasefire, with easing oil prices reducing inflationary pressures and potentially allowing the Bank of England to resume monetary easing. While geopolitical risks remain, the immediate market reaction has been positive for the Pound Sterling. Investors will be watching upcoming negotiations and BoE policy decisions for further direction.