• Sterling rallies as hopes of a quicker Iran exit improve market sentiment.
• Strong US data and rising prices keep inflation risks alive.
• Softer UK manufacturing activity limits upside despite broad Dollar weakness.

The Pound Sterling advances over 0.70% on Wednesday as risk appetite improved amid speculation of an end to the Middle East conflict, following US President Trump's statement, "We're going to be out of Iran pretty quickly." The GBP/USD trades above 1.3300 after bouncing off daily lows of 1.3216.

Sterling advances as risk-on mood dents Dollar despite hot prices

On Tuesday, rumours surfaced that Trump was considering withdrawing from the conflict, even though the Strait of Hormuz would remain shut. Nevertheless, a Daily Mail columnist reported that sources at the White House said Trump is "considering taking Kharg Island."

Risk appetite improved following Trump's withdrawal statement, as global equities rallied while the US Dollar erased its earlier gains.

US economy faring better than expected

The US economy remains solid, yet inflationary pressures are building, according to data. The ISM Manufacturing PMI for March exceeded estimates, rising to 52.7 from 52.5, signalling strong economic activity at the expense of higher prices. The ISM's sub-component Prices Paid Index rose sharply to its highest level in almost 4 years at 78.3.

Earlier, Retail Sales rose 0.6% MoM in February, its largest jump in seven months, above economists' forecasts for a 0.5% increase, and up from January's -0.1% revised dip. Furthermore, the US ADP Employment Change in March revealed that private payrolls rose by 62K, slightly below February's 66K and better than the expected 40K.

Fed's Barkin and Musalem are concerned about inflation

Speeches by Federal Reserve officials failed to boost the Greenback, even though the data justify a further recovery in the US Dollar. Richmond Fed Thomas Barkin said that households and firms are still seeing the energy shock as a short-term issue. However, he warned that "The hike case would be around inflation expectations starting to move finally."

St. Louis Fed Alberto Musalem said that policy is well-positioned amid current economic uncertainty, is appropriate, and does not see a need to move rates, while warning of potential inflation risks spurred by the Middle East conflict.

In the UK, business activity in the manufacturing sector expanded at a slower rate, as S&P Global UK Manufacturing PMI for March fell to 51.0, missing a preliminary estimate of 51.4. Meanwhile, the Bank of England Governor Andrew Bailey said to Reuters that markets are getting ahead of themselves, regarding rate hikes.

GBP/USD Price Analysis: Technical outlook

In the daily chart, GBP/USD trades at 1.3332. The pair retains a mildly bearish near-term bias as it holds below the clustered simple moving averages around 1.35, which cap the upside and confirm loss of momentum from the late-1.38 area. Price is now oscillating between an ascending support trend line from 1.3035 and a descending resistance line from 1.3869, highlighting a broad consolidation with a downside tilt while successive closes remain under the downtrend cap.

Initial resistance is located near the confluence of the descending trend line and the grouped daily averages around 1.35, with a break there exposing 1.36 as the next notable barrier. On the downside, immediate support appears in the 1.32 zone, ahead of the rising trend line that currently underpins the structure just above 1.31. A clear daily close below that trend support would strengthen the bearish case and open the way toward 1.30, while holding above it keeps the pair in a wide range despite the present downward bias.

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