Over the past few weeks, GBP/USD has posted strong gains that could mark the beginning of a new bullish trend. Sellers proved unable to regain control this week despite two further escalations in the Middle East and the current suspension of negotiations.
U.S. President Donald Trump has already revoked the authorization allowing Iran to export oil under the peace agreement and reimposed restrictions on Iranian ports. Meanwhile, Iran has once again blocked the Strait of Hormuz from its side. As a result, the ceasefire has effectively collapsed, and negotiations have come to a halt.
Even so, traders remain unconvinced that a full-scale conflict will resume, as similar situations have occurred repeatedly in the past, with both sides eventually returning to the negotiating table. The market largely ignored the renewed geopolitical tensions, which I believe was a reasonable reaction.
Instead, buyers received an unexpected boost from U.S. inflation, which slowed to 3.5% year-on-year this week. That was followed by Federal Reserve Chair Kevin Warsh's congressional testimony, during which he refrained from signaling further monetary tightening, triggering another wave of disappointment for dollar bulls. Consequently, there is now little confidence that the Federal Reserve will begin tightening monetary policy as early as September. By then, markets will also have a clearer picture of developments in the Middle East, autumn oil and natural gas prices ahead of winter, and how inflation responds to the new geopolitical and energy environment.
It is also worth noting that the market initially expected U.S. inflation to continue rising unless the Federal Open Market Committee (FOMC) intervened. Those concerns later eased as oil prices fell to around $70 per barrel. This week, however, oil climbed to approximately $87, and the latest escalation in the Middle East, together with the renewed disruption of shipping through the Strait of Hormuz, could push prices even higher.
Should events unfold according to the most pessimistic scenario, oil prices could return to the $100–120 per barrel range. Under those circumstances, hopes for slowing inflation in either the United States or the Eurozone would quickly fade. Conversely, if the situation develops more favorably, oil prices could retreat to the $60–70 range, reducing the need for further monetary tightening.
Technical analysis supported a move toward the 1.3322 level, and that target has now been reached. Price first swept liquidity below the April 6 low and then below the March 31 low, providing a solid technical basis for expecting further gains in the pound.
Given that the U.S. dollar still lacks strong long-term bullish drivers and has already posted impressive gains during 2026, I believe sellers are unlikely to regain sustained control. Last week, Bullish Imbalance 23 also formed, and price reacted to it twice, offering traders opportunities to open long positions. Bearish Imbalance 21 has now been invalidated. Therefore, I expect either a continuation of the current advance or a resumption of the uptrend following a corrective pullback.
At present, market participants remain highly cautious regarding geopolitical headlines. If Iran and the United States were to resume large-scale military operations, sellers could regain the initiative. However, few market participants currently consider that outcome likely. As a result, the only significant factor currently supporting the U.S. dollar is the possibility of additional monetary tightening by the FOMC.
Thursday's economic calendar had little impact on trading. The United Kingdom released GDP and industrial production data, while the United States published retail sales and initial jobless claims figures. None of these reports generated a meaningful market reaction.
Overall, the broader fundamental backdrop continues to support a weaker U.S. dollar over the longer term. Neither the conflict between Iran and the United States nor the possibility of a Federal Reserve rate hike in 2026 has materially changed that view. Geopolitical tensions temporarily restored the dollar's safe-haven appeal, but the most intense phase of the conflict has now passed.
The Federal Reserve still intends to raise interest rates during 2026, which is supportive for the dollar. However, tighter monetary policy is also likely to slow both economic growth and labor market activity. Moreover, Kevin Warsh was appointed by Donald Trump to lead the FOMC with the expectation that he would ultimately pursue a more accommodative policy than Jerome Powell. Consequently, in my view, any further appreciation of the U.S. dollar is likely to prove temporary rather than the beginning of a lasting trend.
Economic Calendar (United States and United Kingdom)
United States
- Building Permits (12:30 UTC)
- Housing Starts (12:30 UTC)
- Industrial Production (13:15 UTC)
- University of Michigan Consumer Sentiment Index (14:00 UTC)
The economic calendar for July 17 contains four scheduled releases, none of which I consider particularly significant. Therefore, macroeconomic data are likely to have only a limited impact on market sentiment on Friday, mainly during the second half of the day.
GBP/USD Forecast and Trading Tips
The long-term outlook for the pound remains bullish. Following liquidity sweeps below the two most recent swing lows, buyers have regained the initiative. Although sterling could still resume its decline toward the 1.3007 level—the point at which the current bullish trend would be considered invalidated—that scenario would require fresh bearish technical signals.
Since Bearish Imbalance 21 has been invalidated, no such signal is currently present. Buyers continue to benefit from the two liquidity sweeps as well as Bullish Imbalance 23. Price has already reacted to that imbalance, and the next upside targets are the May 1 and January 27 highs at 1.3656 and 1.3867, respectively.
A new Bullish Imbalance may also form as early as today's daily close following Wednesday's strong rally in the pound.
