GBP Struggles Amid Easing Risk Aversion, US-Iran Conflict Uncertainty

The British Pound (GBP) struggled to hold gains despite easing risk aversion in the markets. The GBP/USD currency pair traded around 1.3470 during Asian hours on Monday, but its losses persisted after three days of gains.

This was due in part to ongoing uncertainty surrounding the US-Iran conflict, which has been a major driver of market volatility in recent weeks. Despite reports that US President Donald Trump held off on planned strikes against Iran, Iranian officials swiftly dismissed these claims, characterizing them as 'nothing but a new lie.'

The Bank of England (BoE) left interest rates unchanged last week, but kept the door open for potential rate hikes due to ongoing uncertainty surrounding the conflict. Analysts at Scotiabank characterized the BoE's decision as signaling 'softened hawkishness,' noting that Governor Andrew Bailey downplayed the urgency around timing of the next rate hike.

Money markets continue to price in a 25-basis-point rate increase by the end of the year, according to Prime Terminal data. This suggests that while the BoE may be hesitant to tighten policy aggressively, it remains alert to inflation risks and is prepared to act if necessary.