Sterling Rises on Its Own More Severe Problems

During Monday's North American afternoon session, the British pound extended its narrow consolidation pattern against the U.S. dollar, trading near 1.36345, edging slightly lower on the day with an overall fluctuation range of less than 35 pips. The pair had earlier touched a five-month high near 1.3700 over the past weekend, indicating that bulls are still attempting to defend recent gains.

**Weak Dollar and Risk Aversion Pull in Opposite Directions**

Sterling's recent strength has largely benefited from a broad softening of the U.S. dollar. With signs of cooling U.S. inflation, market expectations for further Federal Reserve rate hikes have been scaled back, and the U.S. Treasury's announcement of doubling long-term Treasury buyback operations starting in September has led to lower Treasury yields, leaving the dollar index hovering near a three-month low. However, the sharp escalation of tensions between the U.S. and Iran, with Treasury Secretary Bessent announcing "the most severe" sanctions against Iran and Tehran threatening to block the Strait of Hormuz, has sustained geopolitical risk premiums that lend some support to the safe-haven dollar, limiting further upside for the pound.

**Short-Term Outlook for Sterling Still Technically Supported**

Despite a slight pullback on the day, the pound against the dollar has maintained its overall bullish structure since breaking through key resistance last week, with the current price holding above the 1.36 level. Analysts believe that as long as expectations of the Fed nearing the end of its tightening cycle remain unchanged, the dollar will struggle to mount an effective rebound, and non-USD currencies like the pound will continue to hold relative strength in the near term.