GBP/USD drifts higher to approximately 1.3480 in the early Asian session on Monday. The potential for a resolution to the Iran conflict has enhanced risk sentiment, providing support for the British Pound. UK Retail Sales experienced a significant decline in April, marking the largest drop in nearly a year. The GBP/USD pair is showing upward movement, approaching 1.3480 in the early Asian session on Monday. The US Dollar weakens against the British Pound as the United States and Iran signal peace progress. Trading volumes are anticipated to remain subdued as the market will be closed in observance of Memorial Day in the US.
Senior US officials indicated on Sunday that Washington and Tehran are nearing an agreement that would facilitate the reopening of the Strait of Hormuz, despite US President Donald Trump’s statement that he will not “rush” into a deal, according to reports. Signs of progress in the US-Iran peace deal could lend some support to riskier assets, such as the GBP against the USD in the near term. Nonetheless, the threat of renewed war with Iran “still looms large” as Trump continues to leave open the opportunity to launch military strikes. The US President indicated that the US blockade in the Strait of Hormuz “will remain in full force and effect until an agreement is reached, certified, and signed.”
Softer UK Retail Sales data, coupled with an unexpected increase in the Unemployment Rate to 5.0%, has led traders to adjust their expectations for potential Bank of England rate hikes by December. This, in turn, may limit the potential for growth in the Cable sector. BoE policymaker Alan Taylor indicated that a “extended hold” is probably adequate, noting that the second-round inflationary effects are not as pronounced as those experienced during the 2022 Russia-Ukraine invasion, attributed to a cooling domestic jobs market.