British Pound gains as US Dollar weakens despite hawkish Fed, geopolitical tensions

GBP/USD gains ground for the second successive day, trading around 1.3230 during the Asian hours on Monday. The currency pair advances as the US Dollar (USD) weakens, despite hawkish signals from Federal Reserve (Fed) officials. Traders are turning their focus toward key economic indicators due this week, including key US employment data and the Fed’s preferred inflation gauge.

The downside of the Greenback could be restrained as several central bank officials expressed concerns over persistent inflation. Last week, Cleveland Fed President Beth Hammack warned against allowing the public to accept elevated prices as the norm. Echoing this sentiment, Philadelphia Fed President Anna Paulson noted that modest further tightening may be warranted. As a result, money markets are now pricing in a 65.9% chance of a benchmark rate hike at the October Fed meeting, up from 57.6% a week ago and just 9.4% a month ago.

Beyond monetary policy, investors are seeking fresh catalysts while closely tracking geopolitical developments in the Middle East. President Trump recently rejected Iran’s proposal to reopen the Strait of Hormuz, stating that Tehran had overplayed its hand, though he noted negotiations are expected to resume this week. Furthermore, President Trump expressed confidence that the conflict with Iran would conclude soon, while keeping open the possibility of additional military strikes before the midterm elections.

Meanwhile, the British Pound (GBP) is also drawing support from increasingly hawkish rhetoric among Bank of England (BoE) policymakers. BoE Governor Andrew Bailey warned that persistently high energy prices would make it difficult for the central bank to maintain current interest rates. Supporting this hawkish stance, MPC members Sarah Breeden and Clare Lombardelli signaled they are moving closer to backing a rate hike, citing risks that rising energy costs could keep inflation above the BoE's target.

Bailey flags AI upside but warns energy risks could lift GBP

BoE Governor Bailey’s speech scores 8.2/10 on FXS Speechtracker, notably above the historic 6.3/10 baseline, signaling a more impactful and slightly hawkish tone. The warning that prolonged high energy prices make it harder to maintain a no-hike stance, alongside attention to rising mortgage rates, points to a cautious bias toward future tightening that can support GBP.

At the same time, the remark that AI could be a positive shock in an era of negative supply shocks introduces a medium-term constructive narrative for UK productivity and growth. Bailey’s acknowledgment of currently subdued pass-through of energy prices, while stressing it is still early days, reinforces a watchful stance that keeps GBP sensitive to incoming inflation and energy data.