GBP Surges as Iran Diplomacy Hopes Revive, Weakening USD
The British Pound (GBP) has extended its gains against the US Dollar (USD), building on Friday's modest bounce and maintaining its positive momentum at the start of the new week. The GBP/USD pair has lifted spot prices above mid-1.3300s during the Asian session, with the USD Index (DXY) moving away from its monthly high amid reviving hopes for a diplomatic resolution to end the US-Iran conflict.
The US paused its bombing campaign on Iranian targets late on Friday, prompting Tehran to suspend its retaliatory attacks against Washington's allies in the Middle East. This development has triggered a sharp fall in oil prices and eased inflation fears, tempering US Federal Reserve (Fed) rate hike bets and weighing further on the Greenback.
The Pound Sterling benefits from the weaker USD, with traders unwinding some of the geopolitical risk premium. The UK currency may also be supported by restricted shipping traffic through the Strait of Hormuz and the Bab el-Mandeb Strait, which limits losses for oil prices. However, investors will look to the outcome of the highly-anticipated two-day FOMC meeting on Wednesday for further cues about the Fed's policy path.