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GBP/USD is holding near 1.3315 on Tuesday. The pound posted a modest gain the previous day but remains close to three-month lows amid ongoing uncertainty over the impact of the Middle East conflict on the global economy and inflation. Investors continue to favour the US dollar as a key safe-haven asset.

Since the onset of the conflict involving Iran, the dollar has been the primary beneficiary of safe-haven demand, outperforming gold, government bonds, and currencies such as the Swiss franc. Meanwhile, the pound has shown relative resilience compared with several other currencies: over the past three weeks, it has declined by approximately 1.7%, while the yen and euro have lost around 2.0% and 3.0%, respectively. This relative strength is partly due to the UK’s lower dependence on energy imports and its higher interest rate environment.

The key event of the week is the Bank of England’s meeting on Thursday, where the rate is expected to remain unchanged at 3.75%. Markets are currently pricing in just one rate cut before year-end, marking a notable shift from the two cuts anticipated prior to the conflict’s escalation.

Attention will also turn to UK labour market data, which points to a gradual cooling in employment and a slowdown in wage growth. Against this backdrop, with persistent inflationary pressure and rising energy prices, the pound may face further headwinds if macroeconomic conditions continue to deteriorate.

Technical Analysis

On the H4 GBP/USD chart, the market is forming a broad consolidation range around 1.3283, currently extending to 1.3333. A decline to 1.3260 is expected in the near term, after which a new consolidation range is likely to form. An upside breakout would pave the way for a continuation wave towards 1.3360, while a downside breakout would suggest further movement towards 1.3133. Technically, this scenario is confirmed by the MACD indicator, whose signal line is below the zero level and pointing sharply upwards.

On the H1 chart, the market has formed a compact consolidation range around 1.3315. A downside breakout has initiated a wave structure extending to 1.3260. Should this level be breached, further downside towards 1.3125 is likely. Conversely, an upside breakout from the range could trigger a growth wave towards 1.3350. Technically, this scenario is confirmed by the Stochastic oscillator, with its signal line above the 80 level and pointing sharply downwards.

Conclusion

GBP/USD remains in a holding pattern ahead of Thursday’s Bank of England decision, with the pound showing relative resilience compared with other major currencies despite lingering near three-month lows. The dollar continues to dominate as the preferred safe-haven asset amid ongoing Middle East tensions, while shifting rate expectations – from two cuts to just one – reflect the complex inflation dynamics facing policymakers. With UK labour data showing signs of cooling and energy prices remaining elevated, the BoE’s tone on Thursday will be crucial in determining whether sterling can break out of its current consolidation range or extend its recent losses.

Markets

More than two weeks after the start of the military action of the US and Israel against Iran, markets yesterday apparently reached a Short term evaluation point. After adapting towards stagflationary risk due to higher energy prices at least some bad news should now be discounted. At the same time it’s almost impossible also for investors to do a more in dept economic benchmarking as visibility on the (political) outcome of this conflict and on its longer term economic impact remains very low. In this context, markets might have entered a phase where they are pushed back and forth by multiple, conflicting headlines. Yesterday, this process resulted in a brief ‘corrective’ risk-on interludium. Equites rebounded (S&P +1.01%, Eurostoxx +0.39%). Yields eased of the peak levels since the start of the war touched end last week. In this market set-up the dollar also was poised to return some of its recent gains. Especially the repricing on interest rate markets over the previous two weeks at least showed that markets understood that central banks reaction function will be different compared to Covid and to the what happened after the start of the war Ukraine. CB’s in a first reaction are expected to give more weight to trying to prevent second round inflation effects rather than focus on the fall-out on growth. However, also here markets yesterday apparently reached a first evaluation point, with long-term yields both in the US and EMU reaching important technical, psychological barriers (e.g;3% level 10-y EMU, YTD top 10-y US). In this process yields yesterday eased a few bps as markets are now look forward to some more concrete info on CB’s reaction function at the policy meetings later this week. US yields eased between 3.75 bps (30-y) and 6.2 bps (5-y). German yields in a similar move ceded between 4 bps (2-y) and -1.6 bps (30-y). On this temporary/corrective risk-on, the dollar also fell prey to modest profit taking. DXY eased off the 100.5 resistance area to close at 99.71. EUR/USD rebound from the 1.142 area to close just north of 1.15.

In the above-mentioned back-and forth process, markets this morning apparently see the glass again a bit more half empty rather than half full, with headlines this morning focusing on Iran targeting oil production facilities in the region while the US also threatens to attack key Irian Kharg oil infrastructure. At the same time, there is also little indication that political efforts (from the US) to set-up coalition to secure a passage through the Strait of Hormuz will yield results anytime soon. Markets tentatively show ‘a correction on yesterday’s correction’ with yields, oil and the dollar regaining some ground. This, rather erratic process’ might continue for some time to come. The eco calendar is thin today. We keep an eye at investors’ interest in a US Treasury $13 bln 20-y bond auction.

News & Views

The Reserve Bank of Australia raised its cash rate for a second consecutive meeting by 25 bps, from 3.85% to 4.1%. Australian inflation picked up materially in the H2 2025 with information this year suggesting that some of the increase reflects greater domestic capacity pressures. The labour market is also somewhat tighter than expected. In addition, the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term measures of inflation expectations have already risen to a degree that that the board is judging there is a material risk inflation will remain above target for longer than previously anticipated. Uncertainty remains on the outlook with new growth/inflation forecasts available in May (56% market implied probability of 25 bps rate hike). RBA governor Bullock didn’t rule anything in or out for that meeting with the extent to which monetary policy is restrictive also being uncertain. Today’s vote was a close one (5-4) with Bullock explaining that dissenters also projected higher rates but from a timing-perspective wanted to play by the “old” rulebook of gathering more evidence before deciding on action. The 5-4 vote caused a pullback in AUD yields and AUD/USD which was later reversed during Bullock’s hawkish press conference. When asked if the board would push the economy into recession to tame prices, Bullock for example said “if it’s hard to bring inflation down then we’re going to have to deal with that.”

Japanese Finance Minister Katayama reiterated yesterday’s warning that recent currency moves have not been aligned with fundamentals. The deviation appears particularly significant at present. “Considering the impact exchange rates have on people’s daily lives, we are fully prepared to respond at any time”. She added willingness to take bold action in the strongest possible (verbal) intervention threat. USD/JPY keeps hovering around the 160-level which prompted such action in 2024. Apart from oil prices and global dollar moves, Japanese markets will also take note from the Bank of Japan which meets on Thursday. Lack of a hawkish message might spell more trouble for JPY.

Daily Pivots: (S1) 211.06; (P) 211.60; (R1) 212.38; More...

Intraday bias in GBP/JPY is turned neutral first with current recovery. Outlook is unchanged that rebound from 207.20 could have completed with three waves up to 213.28. Below 210.78 will target 209.15 support first. Firm break there will solidify this case and target 207.20 next. On the upside, however, above 213.28 will target a retest on 214.98 high instead.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Firm break of 214.98 will target 61.8% projection of 148.93 (2022 low) to 208.09 (2024 high) from 184.35 at 220.90. This will remain the favored case as long as 55 W EMA (now at 203.08) holds, even in case of another deep pullback.

Daily Pivots: (S1) 182.16; (P) 182.69; (R1) 183.51; More...

EUR/JPY edged lower to 181.85 but quickly recovered. Intraday bias stays neutral first. On the downside, below 181.85 will target 180.78 support. Decisive break there will indicate that fall from 186.86 is already correcting whole up rise from 154.77, and solidify the near term bearish outlook. On the upside, above 184.75 will resume the rebound from 180.78 to retest 186.86 high.

In the bigger picture, a medium term top could be in place at 186.86 and some more consolidations would be seen. Nevertheless, as long as 55 W EMA (now at 175.29) holds, the larger up trend from 114.42 (2020 low) remains intact. Firm break of 186.86 will pave the way to 78.6% projection of 124.37 (2022 low) to 175.41 (2025 high) from 154.77 at 194.88 next.

Daily Pivots: (S1) 0.8621; (P) 0.8636; (R1) 0.8653; More…

EUR/GBP is staying in consolidations above 0.8615 and intraday bias remains neutral. Further decline is expected as long as 55 D EMA (now at 0.8691) holds. Firm break of 0.8611 will resume the whole fall from 0.8863 to 100% projection of 0.8863 to 0.8611 from 0.8788 at 0.8536.

In the bigger picture, current development revived the case that whole rise from 0.8221 (2024 low) has completed at 0.8863, after rejection by 61.8% retracement of 0.9267 (2022 high) to 0.8221 at 0.8867. Sustained trading below 38.2% retracement of 0.8821 to 0.8863 at 0.8618 will confirm this case, and bring deeper fall to 61.8% retracement at 0.8466 at least. For now, medium term outlook is neutral at best as long as 0.8863 resistance holds.

Daily Pivots: (S1) 1.6227; (P) 1.6292; (R1) 1.6334; More...

EUR/AUD is extending consolidations above 1.6125 and intraday bias remains neutral. Further decline is expected with 1.6594 resistance intact. Firm break of 1.6125 will resume the fall from 1.8554 to 1.5913 fibonacci level next. Nevertheless, break of 1.6594 will indicate short term bottoming, and bring stronger rebound.

In the bigger picture, fall from 1.8554 medium term top is seen as reversing the whole up trend from 1.4281 (2022 low). Deeper decline should be seen to 61.8% retracement of 1.4281 to 1.8554 at 1.5913, which is slightly below 1.5963 structural support. Decisive break there will pave the way back to 1.4281. For now, risk will stay on the downside as long as 55 W EMA (now at 1.7238) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9030; (P) 0.9051; (R1) 0.9083; More....

EUR/CHF's corrective recovery from 0.8979 extends higher today and outlook is unchanged. Intraday bias remains neutral and further decline is expected with 0.9092 support turned resistance intact. On the downside, firm break of 0.8979 will resume larger down trend. However, break of 0.9092 will bring stronger rebound to 0.9149 resistance instead.

In the bigger picture, down trend from 0.9928 (2024 high) is still in progress. Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of rebound.

Daily Pivots: (S1) 1.3650; (P) 1.3690; (R1) 1.3728; More...

Range trading continues in USD/CAD and intraday bias stays neutral. On the upside, firm break of 1.3751 resistance will suggest that stronger rebound is underway, and target 1.3927 resistance first. Meanwhile, break of 1.3524 support will bring resumption of whole down trend from 1.4791.

In the bigger picture, price actions from 1.4791 are seen as a corrective pattern to the whole up trend from 1.2005 (2021 low). Deeper fall could be seen, as the pattern extends, to 61.8% retracement of 1.2005 to 1.4791 at 1.3069. However, break of 1.3927 resistance will argue that the correction has completed with three waves down to 1.3480 already.

Daily Pivots: (S1) 0.7010; (P) 0.7047; (R1) 0.7107; More...

Range trading continues in AUD/USD and intraday bias remains neutral. With 0.6943 support intact, further rally is still expected. On the upside, firm break of 100% projection of 0.5913 to 0.6706 from 0.6420 at 0.7213 could prompt upside acceleration to 161.8% projection at 0.7703. However, firm break of 0.6943 will indicate that a larger scale correction is already underway.

In the bigger picture, current development argues that rise from 0.5913 (2024 low) is reversing whole down trend from 0.8006 (2021 high). Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will pave the way back to 0.8006. This will remain the favored case as long as 0.6706 resistance turned support holds, even in case of deep pullback.

Daily Pivots: (S1) 158.68; (P) 159.21; (R1) 159.58; More...

Intraday bias in USD/JPY remains neutral at this point. On the upside, above 159.74 will target a retest of 161.94. Firm break there will confirm larger up trend resumption and target 61.8% projection of 139.87 to 159.44 from 152.25 at 164.34. However, considering bearish divergence condition in 4H MACD, break of 158.55 should indicate short term topping, and turn bias back to the downside for deeper pullback.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 152.70) holds. Firm break of 161.94 will pave the way to 61.8% projection of 102.58 to 161.94 from 139.87 at 176.75.