British Pound rebounds as US Dollar weakens on Iran deal hopes

GBP/USD holds minor gains on Friday after rebounding from intraday lows, supported by improving risk sentiment surrounding a potential US-Iran peace deal. At the time of writing, the pair trades around 1.3460 and is on course to end the week little changed.

A senior Iranian source told Reuters that "a political understanding has been reached between Iran and the US, but it has not yet been finalized." This comes after reports that both sides reached a proposed 60-day memorandum of understanding (MOU) that would extend the current ceasefire and reopen the Strait of Hormuz.

Meanwhile, US President Donald Trump said in a post on Truth Social that the naval blockade on Iranian ports would be lifted. Trump also said Iran “must agree that they will never have a Nuclear Weapon or Bomb” and added that the Strait of Hormuz “must be immediately open, no tolls, for unrestricted shipping traffic, in both directions.”

The cautious optimism pushed the US Dollar (USD) lower, helping the British Pound (GBP) recover part of the losses recorded earlier this week. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around the 98.80 mark after hitting a seven-week high of 99.54 on Thursday.

Oil prices also eased following the latest developments. West Texas Intermediate (WTI) is trading around $86 per barrel at the time of writing and heading for its first monthly decline in five months. However, crude prices still trade well above pre-war levels, keeping inflation risks alive.

Bank of England (BoE) Governor Andrew Bailey said earlier on Friday that “softness in the economy and uncertainty around the Iran war shock means tolerating temporarily above-target inflation is an appropriate way to approach the policy trade-off.” He added that the central bank has already “tightened policy considerably” after taking expected rate cuts off the table in response to the shock relative to what had been expected by markets.

Kansas City Federal Reserve (Fed) President Jeff Schmid said that policymakers “may need to weigh how to make monetary policy more restrictive” and stressed that the Fed “must signal commitment to lowering inflation.”

Looking ahead, traders next week will focus on the global flash PMI data and the US Employment Situation Report, which includes Nonfarm Payrolls (NFP), the Unemployment Rate and wage growth figures.