• GBP/USD moves higher despite uncertainty surrounding monetary policy decisions.
• Hopes of easing tensions between Washington and Tehran weigh on the US Dollar.
• Cooling UK core inflation supports expectations of a pause from the central bank.

GBP/USD trades around 1.3565 on Monday, up 0.23% on the day, supported by a weaker US Dollar in a context of improving risk appetite. The pair benefits from renewed optimism linked to geopolitical developments in the Middle East, as reports indicate an Iranian proposal aimed at reopening the Strait of Hormuz and ending the conflict with the United States (US).

The Greenback’s decline reflects this more positive market mood, with investors reducing exposure to safe-haven assets. The US Dollar (USD) also remains under pressure ahead of the Federal Reserve (Fed) policy decision due on Wednesday. Markets widely expect the Fed to leave interest rates unchanged in the 3.5%-3.75% range, extending a wait-and-see stance amid uncertainty related to inflation and energy-driven risks.

On the UK side, caution prevails ahead of the Bank of England (BoE) meeting scheduled for Thursday. Expectations point to a hold at 3.75%, as core inflation shows signs of easing. The UK Consumer Price Index (CPI) excluding volatile components rose 3.1% YoY in March, slightly down from 3.2% previously, reinforcing the case for a cautious approach from the central bank.

However, some divergence remains within the Monetary Policy Committee (MPC). Chief Economist Huw Pill recently highlighted the need for tighter monetary conditions to contain inflationary pressures, while Governor Andrew Bailey indicated that no immediate policy adjustment is necessary despite recent economic shocks.

Meanwhile, financial institutions such as MUFG note that the Pound Sterling (GBP) remains supported by a hawkish repricing of rate expectations, driven by resilient economic growth and persistent inflation pressures. That said, these supportive factors could be offset by rising domestic political risks in the United Kingdom (UK), which may weigh on the currency in the near term.

In this context, GBP/USD dynamics will largely depend on central bank guidance this week and shifts in market sentiment driven by geopolitical developments, which remain the key short-term catalyst.