GBP/USD rose 0.19% in Monday’s North American session after US-Iran talks stalled and US equities fell. The pair traded at 1.3548 after rebounding from a daily low of 1.3506.
This week has key central bank meetings. The US Federal Reserve starts a two-day meeting on Tuesday and is expected to keep rates unchanged amid high energy prices linked to the Middle East conflict.
Central Bank Focus This Week
Attention is also on whether Fed Chair Jerome Powell stays or resigns once Kevin Warsh is approved to succeed him. On Thursday, the Bank of England is also expected to hold rates, with a projected 8-1 vote split and one member expected to back a rise.
Money markets had priced in 56 basis points of increases, according to Prime Terminal data. UK politics may affect sterling, with Prime Minister Keir Starmer facing scrutiny over appointing Peter Mandelson as US ambassador and pressure linked to Epstein files.
Tuesday’s UK calendar has no scheduled data. In the US, markets are watching ADP Employment Change 4-week average, housing data, and the Conference Board Consumer Confidence survey for April.
Technically, GBP/USD held above the 50-, 100- and 200-day SMAs clustered near 1.3410 and a rising trend-line near 1.3490. The FXS Fed Sentiment Index was 129.62; support sits at 1.3490, then 1.3435, then 1.3410.
Volatility Drivers And Key Risks
With GBP/USD holding near 1.3550, we see the upcoming central bank meetings as the main driver of near-term volatility. While the Federal Reserve is widely expected to stay on hold, any surprisingly firm language from Chair Powell’s eventual successor could boost the dollar. A split vote at the Bank of England, however, presents a clear opportunity for sterling to break higher, especially if more than one member votes for a rate hike.
We are watching the BoE closely because UK inflation proved unexpectedly stubborn through the first quarter of 2026, with the March CPI report showing a 3.2% annual rate. This contrasts with the United States, where the most recent jobs report for March showed a slight cooling in wage growth, giving the Fed more room to wait. This divergence supports option strategies that would profit from a rise in the pound against the dollar in the coming weeks.
The technical picture reinforces a bullish bias, with the support cluster around 1.3410-1.3490 acting as a solid floor for buying call options or selling put spreads. However, the political instability surrounding Prime Minister Starmer is a significant risk that could trigger a sharp reversal on negative headlines. Therefore, purchasing some cheap, out-of-the-money puts could be a prudent hedge against any sudden political fallout.
We remember how the brief energy scare in the fourth quarter of 2025 saw markets rapidly price out rate hikes, only for the BoE to signal its inflation-fighting resolve early in 2026. The current market pricing, which shows over 50 basis points of hikes anticipated for the remainder of the year, suggests traders believe the BoE will prioritize taming inflation over growth concerns. This creates an asymmetric risk to the upside for the pair if the bank delivers a hawkish message this week.
