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The GBP/USD currency pair continued its decline on Monday, which began on Friday before the market closed. Recall that on the last trading day of the previous week, it became known that Donald Trump rejected another "peace plan" from Tehran. As a result, the dollar immediately strengthened. However, as we have mentioned many times, the main geopolitical shock has already been absorbed by the market, and thus any strengthening of the US dollar due to geopolitical factors is likely to happen only in two cases: if a full-scale war resumes or in isolated instances triggered by negative news from the Middle East.
On Monday, the second scenario was implemented. Iran established new boundaries for its blockade of the Strait of Hormuz, and an American destroyer entered the restricted area, ignoring warnings from Tehran, and was subsequently attacked by two Iranian missiles. The fate of the ship is currently unknown, but it is apparent that Washington will not let this act of aggression go unanswered.
The question is: what form will the retribution take? Recent weeks have shown that Trump is not eager to resume bombings of Iran. Firstly, this makes little sense, as it does not lead to the deal the American president wants. Secondly, Trump does not want a protracted war since Congressional elections are approaching, and his party has a good chance of losing both chambers. Thirdly, the oil blockade of Iran brings huge super profits to the US, as its oil and gas export volumes are growing. Additionally, energy prices are currently much higher than they were a few months ago.
In this light, Washington has no urgent need to act, but Iran does. Without the ability to export its energy resources, the country loses almost its sole substantial source of budget income. Therefore, a US blockade of the Strait is significantly disadvantageous for Iran, so Tehran is more likely to attempt to lift the blockade by force than to remain isolated from the world for months or years.
We believe that each new piece of negative news from the Middle East will provoke a slight strengthening of the dollar. Overall, the American currency, as it lacked any grounds for medium-term growth, still does. The Middle Eastern war provided the dollar with a two-month reprieve, but all trends on the higher timeframes remain relevant. Thus, we expect further growth of the British currency.
And not just based on the possibility of a divergence in rates between the Bank of England and the Federal Reserve in 2026, although this factor will also support the British pound. The expectation is based on Trump's policies. Last year, it became clear that Trump wanted a weaker dollar, and his policies aim to create alignment internationally. Clearly, the dollar cannot grow if half of the world's countries view America unfavorably. The national debt continues to rise under Trump, the trade balance remains in deficit, the economy is slowing, inflation is rising, and experts are anticipating a stock market crash. Other countries and their currencies cannot boast of strong economic performance either, but against the dollar, even the Kazakh tenge looks like a relatively safe currency.
The average volatility of the GBP/USD pair over the last 5 trading days is 99 pips, which is considered "average" for this pair. On Tuesday, May 5, we expect movement within the range limited by 1.3434 and 1.3632. The upper channel of linear regression is directed downward, indicating a bearish trend. The CCI indicator has entered the overbought area and formed a "bearish" divergence, warning of a downward correction that has already completed.
The GBP/USD currency pair continues its recovery after two "months of geopolitics." Trump's policy will continue to pressure the US economy, so we do not expect the US currency to grow in 2026. Therefore, long positions targeting 1.3916 and above remain relevant when the price is above the moving average. If the price is below the moving average line, shorts can be considered with targets at 1.3489 and 1.3434 based on technical grounds. In recent weeks, the British currency has recovered, and the geopolitical factor is losing its influence on the market.
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