- The exchange rate may drop to 1.3498 as Trump deliberates military assistance for Israel against Iran.
- Demand for safe haven assets boosts the US dollar. The DXY increases to 98.43 despite soft US economic data.
- The Federal Reserve and Bank of England are shifting focus on their policy moves. Current interest rates still favor the dollar.
The GBP/USD has slipped below the 1.3500 mark for the first time in a week, declining about 0.39% as tensions in the Middle East remain elevated. Reports indicate that the US is contemplating whether to support Israel in a potential conflict with Iran. At present, the exchange is at 1.3515, after earlier reaching as high as 1.3579.
Sterling is down over 0.5% due to rising demand for the US dollar amid Middle Eastern tensions
Geopolitical concerns are pushing up the value of the US dollar. The dollar increased by 0.31% to 98.43, according to the US Dollar Index, which measures the dollar’s performance against six other currencies. This comes after US President Donald Trump advised Iranians in Tehran to evacuate following his abrupt departure from the G7 summit in Canada.
On the topic of politics, Trump is weighing the possibility of participating in Israeli strikes against Iran. A source noted, “Trump remains firm on preventing Iran from acquiring a nuclear weapon. Considering Iran’s air defenses, various options are available.”
Meanwhile, GBP/USD traders are anticipating monetary policy announcements from both the Federal Reserve and the Bank of England. Although interest rate disparities may favor the dollar, no significant changes are expected from either central bank.
In terms of economic data, US reports revealed a drop in retail sales contracts for May, attributed to decreased vehicle purchases. Sales fell 0.9% month-over-month, missing the anticipated 0.7% decline. Over the past year leading to May, sales only increased by 3.3%, down from a 5% surge in April.
Additionally, US industrial production saw a decline for the second time in three months, deviating from forecasts that had predicted a 0.1% increase, instead dropping by 0.2% month-over-month.
Across the Atlantic, there wasn’t much significant data, but discussions at the G7 between the US and UK progressed. Trump signed an agreement to reduce tariffs on UK imports as they continue to work on a formal trade deal.
GBP/USD price forecast: Technical outlook
After breaking past the 1.3500 mark, GBP/USD has the potential to test a pullback towards the low of 1.3414 from May 29. A decisive breach of this level could lead to support at the 50-day Simple Moving Average (SMA) of 1.3365.
On the other hand, if GBP/USD retraces to the 20-day SMA at 1.3544, a test of 1.3600 could be in the cards. If that level is broken, it would expose the year-to-date high of 1.3631.
