- GBP/USD has decreased by over 0.40%, driven by weak UK data and Bank of England policy changes, which bolster dollar strength.
- Israel has launched attacks on Iran’s nuclear and military sites, prompting Iran to respond with a significant drone strike, heightening global risk aversion.
- The US dollar experiences a rally as it serves as a safe haven, alongside findings from the June University of Michigan Consumer Sentiment Report.
The GBP/USD pair slid more than 0.40% on Friday after rising geopolitical tensions led investors to flock towards the safety of the US dollar. This shift followed Israel’s attacks on Iran, intensifying conflicts in the Middle East. The exchange rate for this pair dropped to about 1.3550, falling from a three-year peak of 1.3632.
The pound has been rising amid war threats and demand for strong US data, favoring safe havens
According to Israeli officials, the military strikes targeted various Iranian nuclear facilities, missile factories, and military leaders. Meanwhile, reports from Iranian media indicated that explosions were heard in cities like Tehran and Natanz, the latter being crucial to Iran’s nuclear ambitions.
In retaliation, Iran has dispatched over 100 drones towards Israel.
Aside from the geopolitical landscape, the US dollar gained momentum from the June University of Michigan Consumer Sentiment Report, which showcased a brighter outlook on the economy. The index rose from 52.2 to 60.5, while inflation expectations saw a decline—from 6.6% to 5.1% for one year and from 4.2% to 4.1% for five years.
On the UK side, there were no significant economic announcements on Friday. However, weekly reports indicated a slowdown in the economy. Data surrounding manufacturing, employment, and growth painted a grim picture for Prime Minister Rachel Reeves, who just put out a spending review.
In the near term, it seems likely that the GBP/USD could continue to face downward pressure amid risk aversion. The divergence in central bank policies likely favors the dollar, especially as the Federal Reserve has taken a more neutral to restrictive stance.
Meanwhile, the swap market is looking at a relaxed outlook of 50 basis points from the Bank of England as the year draws to a close.
GBP/USD Price Outlook: Technical Analysis
Despite the GBP/USD hitting a two-day low of 1.3515, it managed to stabilize in the short run, thanks to buyers stepping in. The relative strength index (RSI) remains on the bullish side but is nearing the 50 threshold, suggesting that buyers might be taking a pause.
If the GBP/USD breaks above 1.3600, the next resistance would be the year-to-date high at 1.3632, followed by 1.37. Conversely, should the pair dip below 1.3550, it may push downward towards 1.3500.
