Pound Stalls at 1.3300; US Inflation Concerns Weigh on Markets

The British pound is struggling to extend its gains against the US dollar in trading on Monday (October 19, 2026). The GBP/USD currency pair is hovering around the 1.3330 level, having previously approached 1.3300. Although buyers have begun to re-enter the market, the pound’s upside remains limited as the US dollar finds support from uncertainty surrounding Federal Reserve (Fed) interest rate policy and escalating geopolitical tensions in the Middle East.

Previously, the US dollar weakened to a two-week low on Friday, snapping a four-week winning streak. This decline was driven by a drop in US government bond yields from multi-year highs. Furthermore, Fed Chair Kevin Warsh opted not to provide any guidance regarding future interest rate decisions. This stance led market participants to scale back expectations for an October rate hike, even though recent US inflation data had come in higher than anticipated.

However, the pressure on the US dollar has begun to ease, as the market still assigns a greater than 90% probability that the Fed will raise interest rates in December. This expectation is fueled by concerns that rising energy costs could exacerbate inflation in the United States. Crude oil prices also surged on Friday amid heightened tensions in the Middle East, increasing the risk of higher prices for goods and services in the coming months.

Geopolitical tensions have intensified following a report from Iran’s Revolutionary Guard that an oil tanker suffered an explosion and fire after striking a naval mine in the Strait of Hormuz. Additionally, senior Iranian security official Mohsen Rezaei warned that his country has prepared retaliatory plans in the event of any new attacks by the United States or Israel. This situation has prompted investors to exercise greater caution, boosting demand for the US dollar—an asset often viewed as a "safe haven" during periods of heightened global uncertainty. On the other hand, the pound sterling continues to draw support from growing expectations that the Bank of England (BoE) will raise interest rates by 25 basis points in November. A higher interest rate policy could potentially make the British currency more attractive to investors. Looking ahead, the GBP/USD pair may see further gains if expectations for a BoE rate hike strengthen and the US dollar weakens. Conversely, should inflationary pressures in the US intensify and the Federal Reserve maintain a hawkish stance, the pound sterling risks falling back toward the 1.3300 level.