Sterling tests mid-February highs near 1.3600, but BoE rate expectations have dropped from three hikes to two, and H4 MACD divergence warns of a pullback toward 1.3344.
GBP/USD climbed to 1.3599 on Thursday, testing its highest levels since mid-February, as the dollar weakened on reports that the White House is close to signing a framework memorandum with Iran. The simple read is that fading geopolitical risk is reducing demand for the dollar as a safe haven, lifting cable. But the better read requires looking at the rate differential and the technical exhaustion signals now flashing on the charts. The move fits a broader pattern of dollar weakness seen across the forex market this week, but sterling’s own story is less supportive than the headline suggests.
According to Axios, the White House is close to signing a framework memorandum with Iran that could pave the way for ending the conflict and launching nuclear negotiations. Tehran’s response is expected within the next 48 hours, although a final agreement has yet to be secured. This news has been enough to chip away at the geopolitical risk premium that had been supporting the dollar. When investors price in a lower probability of military escalation, they unwind defensive dollar longs, and that flow has been the primary driver of the move above 1.3500.
The transmission is straightforward: reduced safe-haven demand weakens the dollar across the board, and sterling, as a risk-sensitive currency, catches a bid. But the move is not purely a risk-on story. The dollar had been overbought on rate differentials and haven flows, and this catalyst triggered a positioning flush. The risk-on mood also lifted rate-sensitive real estate names like Safehold (SAFE), though its Alpha Score of 54/100 signals mixed momentum, suggesting the move is not yet broad-based. For cable, the rally has more to do with dollar supply than with sterling demand, and that distinction matters for durability. A trader watching the GBP/USD profile would see that the spot move is outpacing the shift in rate spreads, a gap that often closes with a correction.
While the dollar side of the equation is driving the pair higher, the pound’s own fundamentals are quietly deteriorating. Markets have repriced Bank of England rate expectations lower. The current pricing implies around 50 basis points of tightening by the end of the year, equivalent to two quarter-point rate increases. Previously, investors had anticipated as many as three hikes.
This shift matters because it narrows the expected rate advantage that sterling holds over the dollar. The Fed is still seen as on hold or potentially cutting later this year, but the BoE’s hawkish premium is shrinking. Specifically:
The fact that cable rallied despite this repricing tells you how dominant the dollar-weakness flow is right now. But if the Iran news fades or reverses, the pair will be left with a less supportive rate backdrop, making it vulnerable to a sharp correction. The better read is that the rally is being driven by a temporary dollar unwind, not by a structural improvement in sterling’s yield appeal. For position sizing, traders can use a forex pip calculator to gauge risk around these event-driven swings.
The technical picture reinforces the caution. On the H4 chart, GBP/USD is trading within a broad consolidation range above 1.3515, currently extending towards 1.3650. A corrective move lower towards 1.3344 remains a live possibility. After any such correction, the pair may consolidate again. A breakout higher would reopen the path towards 1.3650, while a downside break could extend losses towards 1.3344.
The MACD indicator supports this scenario. The signal line is above zero but pointing firmly lower, indicating fading bullish momentum. That divergence between price making higher highs and momentum turning down is a classic warning that the rally is losing steam.
On the H1 chart, the pair is trading within a compact consolidation range around 1.3615. The range has extended lower towards 1.3578, with the pair attempting to rebound towards 1.3615 as a retest from below. After that, another decline towards 1.3565 may follow. The Stochastic oscillator confirms this outlook, with the signal line below 50 and pointing downwards towards 20, signalling increasing short-term downside pressure.
The combination of a bearish MACD on the higher timeframe and a bearish Stochastic on the lower timeframe suggests that the path of least resistance in the near term is lower. The 1.3344 level is not just a random support; it aligns with the lower bound of the consolidation range and would represent a full retracement of the Iran-deal optimism spike.
Two event risks will determine whether the dollar selloff continues or reverses. The first is Iran’s response to the framework memorandum, expected within 48 hours. If Tehran signals willingness to proceed, the safe-haven bid for the dollar could evaporate further, potentially pushing cable toward 1.3650. If the response is negative or the deal collapses, expect a rapid snapback in dollar demand, driving GBP/USD back toward 1.3515 and then 1.3344.
The second risk is the UK local elections, where opinion polls suggest Keir Starmer’s Labour party could face notable losses. Political uncertainty in the UK has not been a major driver for sterling recently, but a worse-than-expected result could raise questions about government stability and weigh on the pound. That would compound any dollar strength from a failed Iran deal.
For now, the pair is trapped between the geopolitical headline flow and the technical range. The simple take is that sterling is rallying on Iran hopes; the better take is that the rally is fragile, capped by a less hawkish BoE and technical exhaustion. The next move will likely be decided by Tehran’s answer, and traders should watch the 1.3515 support and 1.3650 resistance as the boundaries of the current regime.
AI-drafted from named sources and checked against AlphaScala publishing rules before release. Direct quotes must match source text, low-information tables are removed, and thinner or higher-risk stories can be held for manual review.