GBP Holds Steady Above $1.3450 as Iran Hopes and Fed Repricing Weigh on USD

The British Pound has maintained its strength above the $1.3450 level as market participants await further developments in the Middle East crisis and reassess their bets on a potential US Federal Reserve rate hike.

Hopes for progress towards a peace deal between the US and Iran have kept the safe-haven dollar depressed near a seven-week low, acting as a tailwind for the GBP/USD pair. The optimism surrounding a diplomatic resolution to end the five-month-old US-Iran war has also helped ease inflation fears, tempering expectations for a rate hike by the Fed.

Scotiabank's Global FX Strategy team notes that the Pound remains underpinned, citing 'a solid rise in Cable last week and bullish leaning trend oscillators' which suggest some upside potential for the pound. However, geopolitical risk premium remains in play due to ongoing tensions in the region, limiting deeper USD losses and capping the upside for the GBP/USD pair.