British Pound Holds Gains As US Dollar Weakens On Easing Risk Aversion

• GBP/USD appreciates as the US Dollar loses ground on easing risk aversion following a partial Israel-Hezbollah ceasefire.

• President Trump announced that Israel agreed to halt troop deployment to Hezbollah-controlled Beirut.

• BoE Governor Bailey signaled no rush to raise interest rates, citing weak UK growth and the unpredictable Iran war.

GBP/USD gains ground after registering minor losses in the previous day, trading around 1.3470 during the European hours on Tuesday. The pair appreciates as the US Dollar (USD) loses ground on easing risk aversion due to a partial ceasefire between Hezbollah and Israel.

US President Donald Trump announced on social media on Monday that Israel has agreed to pull back any troops that were preparing to attack Beirut and its suburbs controlled by Hezbollah. Furthermore, Trump also communicated with Iran-aligned Lebanese militant group Hezbollah through intermediaries and secured a pledge that it would not attack Israel.

However, the US Dollar may regain its ground amid increased risk aversion due to ongoing geopolitical uncertainties. Iran's Tasnim news agency indicated that Tehran has halted indirect negotiations with the United States. Iran and its "Resistance Front" allies, spanning Yemen, Lebanon, and Iraq, have established an agenda to completely block the critical Strait of Hormuz and activate additional fronts, including the Bab el-Mandeb Strait, as a means to punish Israel and its supporters.

Axios reported on X that Iran deployed additional naval mines in the strait last week. These combined developments pose a severe obstacle to a swift resolution of the crisis, which has already effectively shut down the Strait of Hormuz, a vital chokepoint for global oil and liquefied natural gas supplies.

Bank of England (BoE) Governor Andrew Bailey signaled on Friday that the central bank is in no rush to raise interest rates, citing weak domestic economic growth and the highly unpredictable outcome of the war in Iran. In response to this cautious stance, money market futures have adjusted their expectations; according to Reuters, markets are currently pricing in 32 basis points of tightening for the year, which guarantees one quarter-point rate hike and reflects roughly a 30% chance of a second.