Sterling Holds Below Mid-1.3600s as Dollar Firms, Fed Risks and Iran Tensions Intensify

Sterling/dollar extended its narrow trading range on Tuesday, with the pair last at 1.36298, continuing to consolidate within recent ranges. The dollar attempted a modest rebound from its lowest level since May 14, exerting some pressure on sterling, but bears failed to build momentum, leaving the market largely in a wait-and-see mode.

**Fed Policy Expectations Drive FX Market Sentiment**

Market focus this week centers on Federal Reserve policy signals. Wednesday's release of the U.S. July core PCE inflation data, along with Friday's keynote speech by Fed Governor Waller at the Jackson Hole symposium, are seen as key variables influencing the dollar's near-term direction. According to ING analyst Chris Turner, the risk from Waller skews hawkish, as his July press conference already triggered a selloff in long-end U.S. Treasuries. Should Waller further reinforce his anti-inflation stance, the dollar could gain support, adding downside pressure on sterling.

**Geopolitical Tensions Heighten Risk Aversion**

Escalating tensions in Iran have provided some safe-haven bids for the dollar. U.S. Treasury Secretary Bessent is expected to announce new sanctions on Iran, compounded by renewed U.S.-Canada trade frictions, which have dampened appetite for risk assets. However, Turner noted that a significant escalation in tariff tensions could instead weigh negatively on the dollar, leaving the pair's direction subject to two-sided uncertainty. As of Tuesday's Asian session, sterling/dollar hovered around 1.36298, lacking clear directional breakout signals.