Pound-Dollar Rate's Blitz Fades to a Grind Higher
- Written by: Gary Howes
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The pound-dollar exchange rate enters a more fitful stage of its advance.
GBP/USD surged through the first half of April, rising from 1.3160 to the cusp of 1.36 by the middle of this week, where it met resistance and fell back, having failed to advance through here on three occasions.
The underlying theme of easing Middle East tensions provides the fundamental impulse for that recovery, but why has it stumbled this week, and is this the end of the rally?
According to one analyst, it's entirely reasonable to expect pound sterling to run out of steam at this point, or more precisely, it's to be expected that the dollar selloff would eventually fade.
After all, it's the dollar that's clearly in charge of this pair (and why it's probably not too bothered by the latest news regarding Britain's under-fire Prime Minister).
"Markets are tired," says Brent Donnelly at Spectra Markets. "A lot of capital and mental energy were spent in March. Markets can’t go pedal to the metal forever and now it’s time for some consolidation and chilling."
"USD weakness should continue but in a low volatility, grinding kind of way," he adds.
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For GBP/USD that should provide some guidance: further gains are possible here, but the pace will be slower and prone to periodic setbacks.
The Iran war remains the main trigger point for setbacks and advances: the market is optimistic that the war is in the endgame stage and that the Strait of Hormuz will be reopened in the coming weeks.
Above: 1.36 is a formidable resistance point for GBP/USD, stretching back into 2025.
For GBP/USD to fall materially, we would require a breakdown in negotiations between the U.S. and Iran and a re-escalation in hostilities.
"It’s difficult to think what would truly shock markets right here. Escalation in Iran will be scary for a short time (one day?) but with the AI fever back, people will simply say: Does Iran impact tech earnings? No? Okay cool," says Brent Donnelly at Spectra Markets.
In short, the bar to further gains is low and a steady grind higher is on the cards for GBP/USD.
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