GBP/USD has posted a strong rally in recent weeks, which may mark the beginning of a new bullish trend. Bears proved unable to regain control this week despite two further escalations in the Middle East and the current suspension of negotiations. Donald Trump has already revoked the authorization allowing Iran to sell oil under the peace agreement and has imposed a blockade on Iranian ports. In response, Iran has once again closed the Strait of Hormuz from its side. As a result, the ceasefire and peace negotiations have effectively come to an end.

Even so, traders do not yet believe that the war will resume, as similar situations have occurred more than once before, with both sides eventually returning to the negotiating table. The market has largely ignored the deterioration in the geopolitical situation, which I believe is justified. This week, bullish traders received an unexpected boost after U.S. inflation fell to 3.5%. Later, Kevin Warsh declined to promise Congress that the Federal Reserve would tighten monetary policy, triggering another wave of disappointment for the U.S. dollar. As a result, there is no longer any certainty that the Fed will begin tightening monetary policy even in September. Moreover, by then it should become clear how the conflict in the Middle East is evolving, where oil and natural gas prices will stand heading into winter, and how inflation will respond to the new geopolitical and energy environment. Therefore, I am not convinced that the Federal Reserve will necessarily tighten monetary policy in 2026.

It is also worth noting that the market initially expected U.S. inflation to continue rising unless the FOMC intervened. Later, inflation risks eased as oil prices fell to $70 per barrel. This week, however, oil climbed to $87, while the latest escalation in the Middle East and the blockade of the Strait of Hormuz could drive prices even higher. Under the most pessimistic scenario, oil could return to the $100–120 per barrel range. In that case, hopes for slowing inflation in either the United States or the Eurozone would quickly fade. Under a more optimistic scenario, oil prices could return to the $60–70 range, reducing the need for further monetary policy tightening.

Technical analysis pointed to potential growth toward the 1.3322 level, which is exactly what occurred. Price first swept liquidity below the April 6 low and then below the March 31 low. These liquidity grabs provided solid grounds for expecting further gains in the pound. Given that the U.S. dollar still lacks strong long-term bullish drivers and has already posted an impressive rally in 2026, I believe the bears are unlikely to regain control. In addition, a bullish imbalance (23) formed last week, and price reacted to it twice. As for bearish imbalance 21, it has been invalidated. Therefore, I expect either the continuation of the pound's rally or the formation of new bullish signals, followed by another upward move after a corrective pullback.

At present, the market remains extremely cautious regarding any geopolitical headlines. If Iran and the United States resume the war, bears could launch another offensive. However, few market participants currently expect such a scenario. Therefore, the only significant factor currently supporting the bears is the possibility of further FOMC monetary policy tightening.

Wednesday's economic calendar had only a limited impact on the market. Neither the U.S. Producer Price Index nor Kevin Warsh's second day of congressional testimony triggered a meaningful market reaction. The pound continues to demonstrate the potential for further appreciation.

Overall, the fundamental backdrop still leads me to expect only long-term weakness in the U.S. dollar. Neither the conflict between Iran and the United States nor the prospect of a Federal Reserve rate hike in 2026 has changed that view. Geopolitical tensions temporarily reminded the market of the dollar's safe-haven status, but the conflict has already passed its most active phase. The Federal Reserve still intends to raise interest rates in 2026, which is supportive for the dollar. However, tighter monetary policy would also slow economic growth and weaken the labor market. It should also be remembered that Kevin Warsh was appointed by Donald Trump to lead the FOMC because he was expected to pursue a more accommodative monetary policy than Jerome Powell. Therefore, in my opinion, any appreciation of the U.S. dollar is likely to be temporary and driven by short-term factors.

News Calendar for the United States and the United Kingdom:

United States

• Retail Sales (12:30 UTC)
• Initial Jobless Claims (12:30 UTC)

The economic calendar for July 16 contains two scheduled events, neither of which I consider particularly important. Therefore, the impact of macroeconomic releases on market sentiment is expected to be limited and confined to the second half of the day.

GBP/USD Forecast and Trading Tips:

The long-term outlook for GBP/USD remains bullish. Following liquidity sweeps below the two most recent swing lows, bulls regained the initiative. The pound could still resume its decline toward the bullish trend invalidation level at 1.3007, but that would require new bearish signals. Bearish imbalance 21 has already been invalidated, so there is currently no clear source for such a signal. In contrast, the two liquidity sweeps and bullish imbalance 23 continue to support the bullish case. Price has already reacted to imbalance 23, and the next upside targets for the pound are the highs of May 1 and January 27 at 1.3656 and 1.3867, respectively.