- Sterling dropped to nearly 1.3545 against the US dollar as investors look for insights regarding the ongoing conflict between Israel and Iran.
- There’s a prevailing hope that the Federal Reserve and the Bank of England will maintain their current policies this week.
- UK inflation is projected to see a modest increase in May.
Pound Sterling (GBP) is in a delicate spot amidst the tensions involving Iran and Israel. The escalating situation in the Middle East has led to a dip in risk appetite, nudging investors toward safer assets.
The conflict has entered its fifth day, and Israeli military reported that they’ve detected missiles launched from Iran towards Israel, as stated by the BBC.
Earlier, Iran urged its allies in the Middle East and called on US President Trump to suspend Prime Minister Netanyahu without delay, according to Reuters.
In response to Tehran’s demand, Trump has engaged in discussions with Vice President JD Vance and sought a meeting with Iranian representatives at the G7 Conference, as reported by the New York Times.
As of now, the US Dollar Index (DXY), which reflects the greenback’s performance against six major currencies, is teetering around 98.15. Typically, in such geopolitical scenarios, you’d expect a boost in demand for safe havens like the US dollar. However, investors are feeling hesitant, waiting for the Fed’s monetary policy announcement on Wednesday.
Daily Digest Market Mover: Pound Sterling dips against the US dollar
- Sterling dropped to around 1.3545 against the US dollar (USD) during European trading hours, as the GBP/USD pair anticipates upcoming monetary policy announcements from the Fed and the Bank of England (BOE) on Wednesday and Thursday.
- The CME FedWatch tool indicates that the Fed is nearly certain to maintain interest rates between 4.25% and 4.50%. Market participants believe that central banks will likely hold rates steady, given that any changes in monetary policy are seen as inappropriate until their potential impact on inflation is understood.
- The Fed’s dot plots—a forecast of projected interest rates—will be a significant focus. The last release suggested at least two rate cuts could occur by year-end, but investors are also keen on the upcoming monetary policy statement and Chairman Powell’s press conference regarding when rate cuts might begin.
- Alongside its monetary policy announcement, the Fed will provide projections related to inflation and economic growth, raising interest in how recent policy changes under President Trump may have shifted these economic drivers.
- In the UK, the Bank of England is expected to hold rates steady at 4.25% as they adopt a “slow and careful” approach in their upcoming meeting, following a recent 25 basis points cut.
- However, market participants are wondering if the BOE might reevaluate its guidance in light of recent changes in the UK labor market. Recent employment data has highlighted rising unemployment and a slowdown in job growth as businesses adjust their workforces due to increased social security contributions.
- Before the BOE makes its policy announcement, investors will closely watch the UK’s Consumer Price Index (CPI) data for May, which is due out on Wednesday and is expected to show a cooling in price pressures.
Technical Analysis: Pound Sterling declines to around 1.3540
The pound is wobbling around 1.3565 during Tuesday’s trading, struggling to reach last week’s three-year high of about 1.3630. The short-term outlook remains bullish, with the 20-day exponential moving average (EMA) sitting near 1.3508.
The 14-day relative strength index (RSI) is finding it hard to break above 60.00. A breakthrough past that level could ignite fresh bullish momentum.
The peak value from January 13, 2022, of 1.3750 presents a significant challenge for this pair. On the downside, the support zone is indicated by the high of 1.3434 from September 26.
