The British pound to US dollar (GBP/USD) pair traded in a narrow range during Monday's Asian session, hovering around the 1.3450 level.
Following recent significant volatility, market risk sentiment has turned cautious, with investors awaiting new fundamental drivers to push the pair out of its current consolidation range.
Recent market focus remains centered on diplomatic negotiations between the United States and Iran.
US President Trump is seeking to amend parts of a previously proposed agreement to end conflicts involving the US, Israel, and Iran, touching on key issues such as shipping arrangements in the Strait of Hormuz and the handling of highly enriched uranium.
Meanwhile, Iranian Foreign Minister Araghchi stated that negotiations and information exchanges between Tehran and Washington are ongoing, but it is currently impossible to assess the outcome of the talks.
Due to significant differences between the two sides on several core issues, market expectations for a near-term agreement have cooled.
The lack of substantive breakthroughs in US-Iran negotiations has led markets to retain a geopolitical risk premium, driving some safe-haven flows into the US dollar.
As the world's primary reserve currency, the US dollar typically attracts more capital during periods of rising global uncertainty, which has also exerted some downward pressure on GBP/USD.
Apart from geopolitical factors, the issue of Federal Reserve independence has recently emerged as a new focus for markets.
Former Fed Chair Powell stated that if a US President could arbitrarily dismiss Fed officials over policy disagreements, it would damage public trust in the US monetary policy system and affect long-term economic stability.
Currently, the US Supreme Court is reviewing a case related to the tenure of Fed Governor Lisa Cook.
Markets believe that the Fed's policy independence is crucial for the long-term credibility of the US dollar and the stability of global financial markets.
Although these events have not directly impacted monetary policy direction for now, investors generally believe the probability of the Fed maintaining a relatively hawkish stance remains high.
Concurrently, risks of rising energy prices stemming from Middle East tensions have kept markets alert to US inflation prospects.
In contrast, sterling faces more domestic pressures recently.
The latest UK economic data shows that inflation growth has slowed, while the unemployment rate unexpectedly rose to 5.0% in April, indicating some cooling in the UK labor market.
Markets have significantly scaled back expectations for further interest rate hikes from the Bank of England.
With inflationary pressures easing and economic growth showing weakness, investors believe the likelihood of the BoE adopting a more cautious policy stance in the near term is increasing.
Bank of England Governor Bailey stated last week that, against the backdrop of an unclear outcome in the Iran conflict and persistently weak UK economic growth, the central bank is in no rush to raise interest rates further.
Bailey said, "We must closely monitor how the Middle East situation affects the UK economy and inflation, and adjust policy accordingly."
Market analysts note that the BoE's recent statements reflect a preference to observe economic and inflation developments rather than rush into further tightening measures.
This shift in policy expectations has eroded some of the support sterling previously derived from high interest rate expectations.
From a global market perspective, the current GBP/USD movement is being influenced by two main factors.
On one hand, increased US safe-haven demand and expectations of a hawkish Fed support the US dollar.
On the other hand, slowing UK economic growth and diminished rate hike expectations weigh on sterling.
Against the backdrop of readjusting policy expectations from both major central banks, GBP/USD may continue its range-bound pattern in the near term.
Markets likely need to wait for more economic data to confirm trends in both countries' economies and inflation before a clearer directional choice can emerge.
Looking at the daily chart, GBP/USD overall maintains its medium-term uptrend structure, but upward momentum has slowed.
The price is currently trading near the main moving average system, with bullish and bearish forces gradually reaching a balance.
The 1.3400 area constitutes a key current support level, while the 1.3500 to 1.3550 zone forms a critical resistance band.
A subsequent break above 1.3550 could open the path for a further test of highs near 1.3650; a break below 1.3400 could trigger a deeper correction.
The RSI indicator has retreated near the neutral zone, indicating market momentum is leveling off.
The MACD indicator's red bars continue to narrow, reflecting a cooling uptrend.
On the 4-hour chart, the pair has recently maintained a range-bound oscillation.
Short-term moving averages are gradually flattening, suggesting a lack of clear market direction.
The MACD indicator fluctuates repeatedly around the zero line, showing strong wait-and-see sentiment among short-term traders.
The RSI indicator hovers near 50, indicating the market is in a state of equilibrium.
Short-term support is located at the 1.3420 and 1.3400 areas, with overhead resistance near 1.3500; a break above could challenge the 1.3550 area.
Overall, a range-trading approach is appropriate for GBP/USD in the short term.
This week's market focus will first be on the US ISM Manufacturing PMI data and subsequently released US employment figures.
If US economic data continues to show strength, markets may further reinforce expectations of the Fed maintaining high interest rates, thereby boosting the US dollar.
Conversely, weak data could ease the dollar's upward momentum and provide a rebound opportunity for sterling.
Additionally, progress in US-Iran negotiations and changes in the Middle East situation will continue to influence market risk appetite and capital flows.
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