GBP/USD remains steady as a robust US Dollar attracts safe-haven interest amid halted US-Iran peace negotiations and escalating tensions in the Middle East. Closing the Strait of Hormuz leads to an increase in energy prices and inflation, which in turn sustains elevated Fed interest rates for an extended period. BoE’s Megan Greene adopted a more hawkish stance, advocating for quicker rate hikes, emphasising that the speed of response is as crucial as the magnitude of the increases. GBP/USD exhibits minimal movement after a four-day rally, currently trading near 1.3470 during the Asian session on Wednesday. The pair steadies as the US Dollar remains firm, driven by stalled US-Iran peace negotiations and renewed tensions in the Middle East, which continue to underpin safe-haven demand.
Iran has initiated the launch of ballistic missiles directed at its neighbouring countries, Kuwait and Bahrain. The United States Central Command announced on Tuesday that it successfully intercepted and neutralised a series of Iranian missile and drone attacks aimed at regional neighbours, including Kuwait and Bahrain. Additionally, CENTCOM conducted self-defence strikes on Iran’s Qeshm Island, according to reoprts. A prolonged closure of the Strait of Hormuz poses a significant risk of escalating energy prices and exacerbating global inflationary pressures, thereby solidifying anticipations that the Federal Reserve will sustain elevated interest rates for a prolonged duration.
This higher-for-longer outlook is strongly underpinned by a robust US economy, as evidenced by the ISM Manufacturing PMI rising to 54 in May 2026, an increase from 52.7 in the preceding two months, surpassing expectations and indicating the most significant factory expansion since May 2022. Further evidence of economic strength emerged in the labour market, as April JOLTS data indicated that job openings surged to a nearly two-year high of 7.6118 million, accompanied by a decline in layoffs. With strong manufacturing and employment data complicating the inflation outlook, investors are now eagerly anticipating Friday’s Nonfarm Payrolls report for clear indications on the future direction of monetary policy.
Bank of England policymakers upheld a resolute position regarding inflation. Policymaker Megan Greene articulated a hawkish stance, indicating an increasing rationale for interest rate increases and underscoring that “the speed of the response is arguably just as important as its size. Her comments come in the wake of remarks from BoE Governor Andrew Bailey, who emphasised the significance of public confidence in the central bank’s dedication to achieving its 2% inflation target.