GBP/USD surged back above the 1.3400 barrier on Monday, climbing 0.3% to 1.3431 as traders navigated shaky consolidation near the 200-day EMA. The rebound from an early dip to 1.3280 reflected fading bets on a Bank of England rate cut amid escalating Middle East tensions, driving energy inflation fears. Cable’s recovery highlights sterling resilience despite broader risk-off flows from the Strait of Hormuz crisis.
Event Details
The pair marked its sixth straight session oscillating around 1.3400, with a bullish close tilting near-term bias toward buyers. Escalation in the Strait of Hormuz, sparked by US-Israeli strikes on Iran killing Supreme Leader Ali Khamenei on February 28, has halted tanker traffic, spiking oil prices and slashing BoE March cut odds from over 80% to under 20%. IRGC threats and attacks on vessels like the Safeen Prestige and Prima underscore the chokepoint’s vulnerability, threatening global energy supplies.
Market Snapshot
GBP/USD bounced off 1.3280 lows to test 1.3450 resistance, holding above the flat 200-day EMA at 1.3400 while below the declining 50-day average. The US dollar index (DXY) eased 0.33% to 98.99, pressuring USD amid safe-haven bids elsewhere. Brent crude (LCOc1) rallied above $76 before paring gains, lifting correlated CAD while gold (GCJ26) dipped 0.24% to $5,146 amid mixed flows.
Policy Response
Markets now price less than one 25-bp BoE cut for all of 2026, reversing pre-crisis dovishness as UK energy import reliance amplifies inflation risks. Oil-driven price surges could add 0.4 points to UK CPI, outpacing euro zone impacts and complicating Bailey’s path. Fed speeches and US jobs data loom, but Trump administration urges tankers to defy IRGC blockade, signaling potential escalation.
Asset Ripples
Equities faced pressure from energy shock, with S&P 500 (SPX) futures soft as growth fears mount; 10-year US Treasury yields dipped, boosting bonds. Cable outperformed EUR/USD at 1.1617 (-0.01%), buoyed by UK-specific inflation tailwinds versus euro zone exposure. Silver (SIK26) jumped 3.04% to $86.88 on industrial demand, while JPY held firm versus USD at 157.79.
Macro Backdrop
The Hormuz standoff threatens UK growth as families face entrenched inflation, with public expectations already elevated following the 2022 peak. Sterling’s rally underscores policy divergence: the BoE trapped by imported inflation, while the USD softens on US data beats, losing steam. Broader implications point to stagflation risks in energy-dependent Europe, capping global rate cuts.
“BoE cut odds evaporating faster than Hormuz traffic, cable buyers piling in on the dip,” stated a London FX trader at Prime Market Terminal. “Oil above $80 seals it; sterling’s the inflation hedge now,” added an Oxford Economics analyst.
Traders eye IRGC escalation signals, US Nonfarm Payrolls on Friday, and Brent breaks above $80 for cable direction. BoE rhetoric ahead of the March 19 meeting and Hormuz tanker transits will dictate risk flows.
