The GBP/USD pair continues its moderate recovery from a three-week low, posting solid gains at the start of the new trading week. This marks the second consecutive day of advances, with spot prices climbing above the key 1.3300 level amid broad-based weakness in the US dollar.

The US Dollar Index (DXY), which tracks the greenback against a basket of major currencies, has retreated from the one-month high reached last week as renewed hopes emerge for a diplomatic resolution to the five-month conflict between the United States and Iran. In particular, the United States suspended its bombing campaign after 13 consecutive nights of strikes on Iranian targets, prompting Tehran to halt its retaliatory actions against Washington's allies in the Middle East.US Ambassador to the United Nations Mike Waltz stated that although military forces remain on standby, President Donald Trump wants to allow negotiations to move forward. Traders quickly scaled back the geopolitical risk premium, undermining demand for the US dollar. In addition, recent developments have triggered a sharp decline in oil prices, easing inflation concerns and reducing expectations that the Federal Reserve will raise interest rates. This has placed additional downward pressure on the US dollar.

At the same time, restrictions on shipping through the Strait of Hormuz and the Bab el-Mandeb Strait are helping to limit further declines in oil prices. Traders expecting continued US dollar weakness may nevertheless refrain from placing aggressive bearish bets ahead of the outcome of the highly anticipated two-day FOMC meeting, which concludes on Wednesday. Investors will be looking for further guidance on the Federal Reserve's monetary policy, which, together with geopolitical developments, is expected to influence the direction of the US dollar and provide a significant catalyst for the GBP/USD pair.

From a technical perspective, GBP/USD continues to trade within a sideways range, as indicated by the flat 200-day Simple Moving Average (SMA). To extend the recovery, bulls need to break above both the 200-day SMA and the nearby 20-day SMA. Momentum indicators remain mixed, while the Relative Strength Index (RSI) is in negative territory, suggesting that sellers continue to hold the upper hand within the current trading range.