British Pound retakes 1.3400 ahead of US CPI as Iran war concerns subside

• Improving sentiment as geopolitical concerns ease drives GBP/USD over 0.50% higher.
• Robust payrolls data lift the probability of a December Fed rate hike to 82%.
• Forecasts put US headline CPI at 3.9% and core inflation at 2.8%.

Improved sentiment lifts the Pound Sterling over 0.50% against the US Dollar on Monday, with GBP/USD trading above 1.3400 after US President Trump plays down the prospect of an escalation in the US-Iran war. Traders are also preparing for the latest US inflation release, following last Friday's Nonfarm Payrolls report.

Can GBP/USD extend gains as geopolitical optimism weighs on the US Dollar ahead of US CPI?

Trump’s remarks continue to support risk appetite, although the US Navy blockade remains in place. The IRGC claimed that Hormuz is closed to unauthorised transit. With bulls buying the dip after the sell-off that followed the Democrats' victory in the US midterm elections, US equity markets open higher while the Greenback loses ground.

Providing support to GBP/USD, the US Dollar Index (DXY) has slipped 0.36% to 101.91. The index tracks the US currency against a basket of six currencies.

A 7-2 vote at the Bank of England delivered a rate increase last week, while the two dissenting members favoured a bigger hike. Despite the hawkish decision, BoE Governor Bailey played down the risk of second-round inflation effects, stating that there is no clear evidence of them.

Meanwhile, upcoming UK Gross Domestic Product (GDP) data could help shape the outlook for interest rates and clarify the impact of elevated energy prices.

A modest hawkish reassessment of the Federal Reserve's December meeting followed last week’s strong US jobs report, which showed the Unemployment Rate declining from 4.2% to 4.1%.

According to the CME FedWatch Tool, markets now assign an 82% probability to a Fed rate increase, compared with 76% last Friday.

At the time of writing, Chicago Fed President Austan Goolsbee struck a hawkish tone. He said services inflation was starting to “pick up,” described it as a “big problem,” and stated that the Fed must acknowledge its failure on inflation.

Attention now turns to Tuesday’s US Consumer Price Index (CPI) release. Headline inflation is projected to increase from 3.7% to 3.9% YoY, while core CPI is forecast to accelerate from 2.6% to 2.8% YoY.

GBP/USD Price Forecast: Can the bullish technical bias hold?

A bullish bias remains intact on the daily chart as GBP/USD trades at 1.3402, above the latest triple of simple moving averages at 1.3359 that now supports the rise. Further structural support comes from the pair holding above two broken descending trend lines: the earlier break around 1.3228 and the more recent one near 1.3376. The 14-period Relative Strength Index stands around 54, pointing to sustained buying pressure rather than overbought conditions. Meanwhile, an elevated FXS Fed Sentiment Index indicates that the macro backdrop remains favourable for the pound.

Initial downside support lies around 1.3376, where the recent trend-line break occurred. Below that, the triple of simple moving averages near 1.3359 forms a clustered technical floor, followed by deeper structural support around 1.3228 at the earlier break of the long-term descending trend line. On the upside, the next major hurdle is around 1.3696, at the break of the rising support trend line drawn from 1.3140. A further barrier lies near the other rising trend-line break around 1.3865, where earlier selling interest could restrain additional gains unless buying momentum strengthens.

(The technical analysis of this story was written with the help of an AI tool. Know more.)