Pound-Dollar Rally Spurred By Trump's Peace Hopes
- Written by: Gary Howes
File image of President Donald Trump. Official White House Photo by Daniel Torok.
The U.S. President said a second round of talks would take place in Islamabad soon.
The ceasefire trade stepped up a notch into the midweek session and helped propel the pound-dollar exchange rate to 1.3579, a level last seen in the days before the war in the Middle East started.
Pound sterling's latest gains against the dollar followed new signs that the U.S. was ready to engage Iran in another round of peace talks, leading traders to bet the Strait of Hormuz would soon be opened to traffic, ending a restriction on the supply of up to 20% of the world's oil and natural gas.
Trump told the New York Post in a phone interview that discussions were "happening, but, you know, a little bit slow", saying that a second round of direct negotiations could happen somewhere in Europe.
The Post says Trump then phoned back, with an update:
"You should stay there, really, because something could be happening over the next two days, and we’re more inclined to go there," he said of talks continuing in Islamabad, Pakistan. "It’s more likely, you know why? Because the field marshal is doing a great job."
Don't let the rate decide.
You decide.
The dollar has come under pressure against the pound and other major currencies since a two-week ceasefire was agreed last week.
"The US administration has shown a clear desire to avoid a drawn-out campaign, especially one that might lead to the dreaded quagmires that have dogged US interventions in the past," says Luci Ellis, Chief Economist at Westpac.
Westpac's 'base case' - which is shared by numerous institutional analysts – is for a one month conflict followed by a one month normalisation that results in a relatively mild and mostly temporary shock to growth and inflation.
The dollar's slide against the pound, euro and other currencies reflects the forward-looking view of markets that a return to 'normal' will be realised in the coming months.
U.S. Vice President JD Vance turned up the supportive mood music, saying Trump is seeking a "grand bargain" with Iran: that's more than just an end to hostilities, it's a complete reset of Iran's place in the world. This would entail movement to bring Iran back into the fold through the removal of sanctions.
That's a better case outcome for markets than a simple reopening of the Strait of Hormuz.
Analysts at Morgan Stanley say the "pathway to DXY weakness is widening, not narrowing," and that "an increase in USD-negative risk premium raise downside risks."
GBP/USD has swiftly risen through some key technical barriers over recent days as relief overpowers the market's structural setups.
Gains took it to a high of 1.3590 on Tuesday, from where it has since pulled back to 1.3550, which could indicate the market is looking for fresh developments before driving further gains.
A consolidative phase could therefore be about to set in, although the broader backdrop does hint at the likelihood of further fresh advances if a decisive end to the Middle East war is announced.
Concierge Money Transfers
For high-value transfers, you need high-value service: dedicated account management, on-point pricing, insight into market conditions and trends, help with structuring your payment, and execution support at key moments.
Learn More →
