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- GBP/USD opens the new week on a subdued note amid a mixed fundamental backdrop.
- Hormuz risks offer support to the safe-haven USD, capping the upside for spot prices.
- Traders look to the UK Construction PMI and the US ISM Services PMI for a fresh impetus.
The GBP/USD pair struggles to capitalize on last week’s strong move higher and oscillates in a narrow band, around the 1.3350 area during the Asian session on Monday. Moreover, spot prices remain below a technically significant 200-day Simple Moving Average (SMA), warranting caution before positioning for an extension of the recent recovery from the 1.3140 zone, or the year-to-date low touched in June.
The US Dollar (USD) kicks off the new week on a positive note amid renewed tensions over the critical Strait of Hormuz and turns out to be a key factor acting as a headwind for the GBP/USD pair. In fact, Iran’s ambassador to China said on Saturday that Tehran plans to introduce new service fees for ships passing through the strategically important waterway. His remarks come despite the US rejecting the idea of Iran charging vessels for using the strait. This keeps the geopolitical risk premium in play and benefits the Greenback’s safe-haven status.
Meanwhile, traders trimmed their bets for interest rate hikes by the US Federal Reserve (Fed) in the wake of unimpressive US monthly employment details, released last Thursday, which pointed to softening labor conditions. Furthermore, easing inflation fears in the face of the recent slump in Crude Oil prices temper market expectations of higher-for-longer interest rates. The resultant shift in bets for zero and one Fed rate hike in 2026, from one to two rate increases, holds back USD bulls from placing aggressive bets and lends support to the GBP/USD pair.
The British Pound (GBP), on the other hand, benefits from commitment from Andy Burnham – the frontrunner to succeed Keir Starmer as UK Prime Minister – to adhere to strict borrowing rules. The GBP bulls, however, seem hesitant as mixed UK PMIs last week pointed to a significant economic slowdown, led by the dominant services sector. This could cap the GBP/USD pair as traders now look to the UK Construction PMI. Meanwhile, the US economic docket highlights the ISM Services PMI, which could provide some impetus later during the North American session.
