British Pound reclaims 1.3400 as Iran war fears ease ahead of US CPI

• GBP/USD gains over 0.50% as easing geopolitical fears lift sentiment.
• December Fed hike odds climb to 82% following strong payrolls.
• US headline CPI expected at 3.9%, with core inflation reaching 2.8%.

The Pound Sterling gains over 0.50% against the US Dollar on Monday as US President Trump downplays a potential escalation in the US-Iran war, while traders brace for the release of the latest US inflation report following last Friday's Nonfarm Payrolls report. The GBP/USD trades above the 1.3400 threshold.

GBP/USD advances as geopolitical optimism weakens the US Dollar; focus on US CPI

Sentiment remains upbeat on Trump’s comments, as the US Navy blockade remains. The IRGC claimed that Hormuz is closed to unauthorized transit. US equity markets open in the green as bulls buy the dip following the sell-off after the Democrats' victory in the US midterm elections, while the Greenback losses ground.

The US Dollar Index (DXY), which measures the performance of the buck versus six currencies, is down 0.36% at 101.91, a tailwind for the GBP/USD pair.

Last week, the Bank of England increased rates in a 7-2 vote, with the two dissenters opting for a larger hike. Even though it was a hawkish hike, BoE Governor Bailey pushed back against the possibility of second-round inflation effects, saying there is no clear evidence.

In the meantime, the release of Gross Domestic Product (GDP) figures in the UK could lay the path for the future of interest rates and the influence of high energy prices.

In the US, last week’s stellar employment report pushed the Unemployment Rate down from 4.2% to 4.1%, triggering a mildly hawkish repricing of the Federal Reserve's December meeting.

The chances that the Fed is going to increase rates are at 82%, up from last Friday’s 76%, according to the CME FedWatch Tool.

As of writing, the Chicago Fed President Austan Goolsbee was hawkish, saying that services inflation is beginning to “pick up,” that it has become a “big problem,” and that the Fed has to come to terms with failure on inflation.

Eyes shift to the release of the US Consumer Price Index (CPI) on Tuesday, which is expected to rise from 3.7% to 3.9% YoY. Core CPI is forecast to rise from 2.6% to 2.8% YoY.

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3402, holding a constructive bullish tone as it sits above the latest simple moving average triple at 1.3359, which now underpins the advance. The pair also trades above the broken downward trend line with a break reference around 1.3228 and the more recent downward trend line break near 1.3376, reinforcing a supportive structural base. Momentum aligns with this positive bias, with the 14-period Relative Strength Index around 54, hinting at steady bullish pressure rather than overbought conditions, while the elevated FXS Fed Sentiment Index suggests a still supportive macro backdrop for the pound.

On the downside, immediate support is seen at the recent trend-line break area around 1.3376, followed by the clustered technical floor at the simple moving average triple near 1.3359, with deeper structural protection referenced by the earlier break of the long-term descending trend line around 1.3228. On the topside, bulls face the next significant resistance at the upward support trend-line break drawn from 1.3140 around 1.3696, ahead of a higher barrier near the other upward trend-line break around 1.3865, where prior supply could cap further gains unless buying pressure intensifies.

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