- The pound has fallen below 1.3400 against the US dollar due to escalating tensions between the US and Iran.
- As the US targets Iran’s nuclear facilities, the market is adopting a risk-averse stance.
- Investors are eagerly awaiting the UK’s Flash PMI data for June.
Pound Sterling (GBP) is projected to dip to around 1.3370 against the US dollar (USD) during European trading hours on Monday. The GBP/USD pairing is prompting investors to flock to safer assets as concerns over the US and Iran rise.
Demand for the US dollar as a safe haven is on the rise, with the US Dollar Index (DXY) hitting a three-week high of about 99.40.
In the European session, Iran has indicated possible retaliation in response to US strikes on three nuclear sites in Tehran over the weekend.
Ebrahim Zolfakari, a spokesman for the Iranian Army, stated that recent actions from the US have broadened the scope of potential targets for Iranian military efforts, warning that the US should brace for significant repercussions.
On the weekend, President Donald Trump claimed that US forces successfully destroyed Iran’s nuclear facilities at Fordow, Natanz, and Isfahan. However, this assertion has been contested by Israeli officials, who suggested that Iran could have relocated its uranium stocks before the attacks, as mentioned in the New York Times.
Additionally, the Iranian parliament has approved a plan to close the Strait of Hormuz, signaling a serious approach to national security.
Strong UK PMI Data Might Not Boost Sterling Against the Dollar
- Even with the UK Flash S&P Global Purchasing Managers’ Index (PMI) data for June exceeding expectations—showing a growth in business activity driven by a strong performance in services and manufacturing—investors are still favoring the US dollar over the pound. The combined PMI registered at 50.7, surpassing the anticipated 50.5 and an earlier estimate of 50.3.
- The Bank of England (BOE) is maintaining a “gradual and prudent” approach to monetary policy, having kept interest rates steady at 4.25% during its recent meeting.
- BOE Governor Andrew Bailey mentioned in a press conference that rates are likely to follow a “gradual downward path.” He has urged other central banks to keep a close watch on the softening labor market and rising energy prices amid the growing tensions in the Middle East.
- In the US, market participants are also anticipating the release of preliminary S&P Global PMI data for June, set to be published at 13:45 GMT. Investors are paying particular attention to how tariffs might influence input costs.
- Federal Reserve Governor Christopher Waller has expressed support for interest rate cuts at the upcoming July policy meeting, hoping tariffs will have a limited inflationary impact while cautioning about labor market disruptions that could necessitate expanded monetary policy.
Technical Analysis: Pound Sterling Below 20-Day EMA
The pound is trading under 1.3400 against the US dollar on Monday, with a bearish short-term outlook as it remains below the 20-day exponential moving average (EMA).
The 14-day relative strength index (RSI) is fluctuating between 40.00 and 60.00, nearing neutral levels around 50, indicating a sideways trend in the short term.
Should the market dip further, the May 16th support level near 1.3250 could be significant. On the upside, a critical barrier lies at the three-year high of around 1.3630.
