🇬🇧 Pound Faces Renewed Pressure from Global and Political Risks
The Pound ended last week on a positive note, gaining support after the reopening of the Strait of Hormuz to commercial vessels. GBP/USD rallied from 1.3160 in early April to just below 1.36 by mid-week, but failed to break this resistance on three attempts and has since pulled back to open around 1.35. However, fresh geopolitical risks have emerged.
Iran has signalled it may close the Strait in response to the ongoing US blockade, which could weigh on GBP against major peers with GBP/EUR remained relatively stable, holding below 1.15 and opening at similar levels. Domestically, political uncertainty is building.
Pressure on PM Starmer has increased following reports that Mandelson’s failed vetting was overruled, contributing to weakness in gilts and sterling. While markets remain calm for now, the prospect of a shift towards a more left-leaning government poses a potential headwind for the pound in the weeks ahead.
🇺🇸 USD Slides on Risk Rally, but Strait Tensions Cloud Outlook
Following the reopening of the Strait of Hormuz, the USD entered the week under pressure, falling nearly 1% against both the Euro and the Pound. The Dollar Index (DXY) is down around 0.8%, reflecting broader support for major counterparts as investors rotate away from USD exposure.
This weakness is partly driven by shifting global capital flows, with concerns mounting around the scale of US Treasury issuance needed to fund ongoing public spending.
However, domestic factors are not the only driver. Geopolitical developments remain central. President Donald Trump stated that Iran had agreed to keep the Strait open permanently, signalling a potential breakthrough in US-Iran relations. Initial optimism boosted risk sentiment and weighed on the Dollar. That narrative has since reversed.
🇪🇺 EUR Outlook Supported by ECB Hikes and Ceasefire Prospects
The Euro begins the week just below 1.18, following gains of nearly 1% against the dollar amid a temporary easing of Middle East tensions. However, risks have quickly resurfaced. Iran has stated the Strait of Hormuz will remain closed until the US lifts its blockade on Iranian ports, calling it a ‘breach of the ceasefire’, while also noting it is reviewing new proposals from Washington.
Should a renewed ceasefire be reached, markets are likely to favour further euro upside, with traders eyeing the 1.20 level as a key target. Expectations of additional rate hikes from the European Central Bank are also supporting the bullish outlook. Against the pound, the Euro has seen more limited movement.
However, ongoing political uncertainty in the UK, including speculation around pressure on Prime Minister Keir Starmer, could create scope for EUR/GBP to move higher in the near term.
Currency In Focus
This week’s focus turns to the Australian Dollar, with the theme of continued gains against GBP remaining intact. Markets are pricing in weaker sentiment around the pound amid rising domestic concerns, while the Aussie dollar is expected to extend its performance.
AUD has been 2026’s best-performing currency, supported by a strong domestic economy and a tight labour market, keeping wages and demand elevated. This is fuelling inflation and reinforcing expectations that the Reserve Bank of Australia (RBA) will maintain a hawkish stance, with scope for further rate hikes. Australia continues to offer some of the highest interest rates in the G10, making it attractive to international investors seeking yield, which in turn supports demand for the currency.
While geopolitical tensions have recently weighed on risk sentiment, any progress towards a renewed ceasefire could improve market confidence and allow the Australian Dollar to extend its bullish momentum, particularly against a softer pound.
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