Sterling is poised for further gains as it tests resistance above 1.36, with market focus tentatively shifting toward upcoming central bank meetings from recently heightened geopolitical tensions.

Though traders have failed in their forays above 1.36 in four of the last eight trading sessions, the prospects appear to be improving with risk recovering from Friday's lows as the Middle East conflict has not shown signs of widening beyond Israel and Iran. While the hostilities remain a significant concern, market sentiment appears to be stabilizing following a report that Iran was seeking to end hostilities. Traders are increasingly attentive to central bank meetings scheduled for this week, notably the BoJ on June 17, the Fed on June 18, and the BoE on June 19.

The Fed's meeting is particularly significant, with futures pricing in nearly a 100% chance of a rate hold, leaving market participants to scrutinize the statement and press conference for hints regarding future policy direction.

Recent rhetoric from the Fed has maintained a cautious approach, focusing on the evolving impact of U.S. President Donald Trump’s trade policies. Heightened uncertainty from the Middle East, especially around shipping and supply chain issues as well as oil market liquidity, may reinforce the Fed’s hold bias, despite signs of softness in recent U.S. data.

LSEG’s IRPR shows a modest upward adjustment in rate expectations, with forecasts for Fed cuts by December 2025 narrowing from -60bp to -47bp in the last week. Still, markets continue to price in two cuts by year-end. Unless the Fed strikes a significantly hawkish tone, sterling bulls are expected to remain active, targeting early January highs above 1.37.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)