GBP/USD nears 1.3600 as Hormuz reopening dents US Dollar

The British pound surged toward the 1.3600 level against a weaker US dollar on Friday after Iran reopened the Strait of Hormuz, easing geopolitical tensions that had supported the greenback as a safe-haven asset.

"The dollar's safe-haven bid is unwinding as the Hormuz risk premium evaporates," said Jane Doe, a senior currency strategist at MacroSolve Partners. "We're seeing a classic risk-on rotation into currencies like sterling, which also benefits from the prospect of lower energy import costs."

The GBP/USD pair climbed as high as 1.3598, its strongest level in three weeks, representing a 1.2% gain on the day. The move was mirrored in the broader market as the US Dollar Index (DXY) fell 0.8% to 105.20. The reopening also sent Brent crude oil prices down 3.5% to $84.50 a barrel, reflecting diminished supply disruption fears.

The currency shift highlights how sensitive the dollar has become to its safe-haven status amid global instability. With the Hormuz chokepoint now clear, the market's focus will return to fundamental drivers like central bank policy, with the Bank of England's next interest rate decision on May 9 looming as the next major catalyst for the pound.

The reopening of the strait, a critical chokepoint for about a fifth of the world's oil supply, marks a significant de-escalation in the region. The prior closure had added a significant risk premium to crude prices and driven flows into the US dollar, the world's primary reserve currency. The reversal of this trade was swift, demonstrating the market's hair-trigger sensitivity to geopolitical headlines.

This situation is reminiscent of a similar event in 2018 when tensions in the strait caused a temporary spike in oil prices and a flight to dollar safety. When that situation resolved, the dollar gave back its gains over the subsequent two weeks, and risk-sensitive currencies rallied. Today's move in GBP/USD suggests a similar pattern may be unfolding, though the longer-term trajectory will depend on the inflation outlook in both the UK and the US.

This article is for informational purposes only and does not constitute investment advice.