The GBP/USD currency pair rebounded to trade near 1.3310, recovering almost all losses from Friday and breaking a four-day losing streak, as investors digested the escalation in the US-Israel conflict against Iran over the weekend. The US launched a massive strike on Iran’s Kharg Island, prompting President Donald Trump to call for an alliance to protect and reopen the Strait of Hormuz. However, most nations declined to send ships, favoring diplomatic solutions instead [1]. Technical analysis shows GBP/USD trading at 1.3316, with a bearish near-term bias as it remains below the 20-period SMA at 1.3325 and the 100-period SMA at 1.3411. The RSI has recovered toward 48, indicating easing bearish pressure. Immediate resistance is at 1.3317, and support is at 1.3284, with a deeper pullback possible if this level is breached [1].
Meanwhile, EUR/GBP edged lower to 0.8636 after buyers failed to sustain a move above 0.8650, as traders await the European Central Bank (ECB) and Bank of England (BoE) interest-rate decisions later this week. The ongoing US-Iran war has rattled energy markets, pushing oil prices higher and raising inflation concerns across the Eurozone and UK. This complicates the outlook for both central banks [2]. The ECB is expected to keep its Deposit Facility Rate at 2.00%, Main Refinancing Operations Rate at 2.15%, and Marginal Lending Facility at 2.40%. Market focus will shift to ECB President Christine Lagarde’s forward guidance, with investors betting on potential rate hikes later this year, possibly by July [2]. Lagarde stated the ECB will ensure the Iran conflict does not trigger an inflation shock similar to that following Russia’s invasion of Ukraine [2].
In the UK, the BoE is now expected to delay rate cuts. Previously, traders priced in an 80% chance of a rate cut at the upcoming meeting, but now expect the BoE to keep the Bank Rate unchanged at 3.75%. There is also increased speculation about a possible rate hike by year-end due to persistent inflation risks, despite weak economic growth [2]. The BoE’s decision will follow the Federal Reserve’s rate announcement, with markets expecting the Fed to keep rates unchanged at 3.50%-3.75% and release a new Summary of Economic Projections, likely influenced by war developments and higher oil prices [1].
Looking forward, traders are monitoring upcoming economic data, including Eurozone inflation figures due Wednesday and the UK labour market report scheduled for Thursday [2].
CONCLUSION
The US-Iran conflict has heightened volatility in currency and energy markets, with GBP/USD rebounding and EUR/GBP steady as traders await key central bank decisions. Rising oil prices and inflation concerns are prompting both the ECB and BoE to reconsider their policy paths, with rate cuts now seen as unlikely in the near term. Market participants are closely watching upcoming economic data and central bank guidance for further direction.