GBP/USD remains below 1.3300 as risk aversion rises on rising geopolitical tensions

• GBP/USD faces challenges due to rising risk aversion sentiment amid escalating conflict in the Middle East.
• Iran launched more than 200 ballistic missiles at Israel and warned that any counterattack would lead to “massive destruction.”
• The BoE’s Greene indicated further interest rate cuts were likely as prices were “moving in the right direction”.

GBP/USD remains warm from losses in the previous session, trading around 1.3280 in Asian hours on Wednesday. This downside could be attributed to risk aversion due to rising geopolitical tensions in the Middle East, undermining the risk-sensitive British Pound (GBP) and GBP/USD pair.

Iran fired more than 200 ballistic missiles at Israel on Tuesday, shortly after the US warned that a strike was imminent. The Israel Defense Forces reported that several of the rockets were intercepted, while reports indicated that one person was killed in the West Bank, according to Bloomberg.

Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran following a missile attack on Tuesday. In response, Tehran warned that any counterattack would lead to “vast destruction”, raising concerns about the potential for a wider conflict.

The US Dollar (USD) is receiving support from the latest speech by Federal Reserve (Fed) Chairman Jerome Powell. Powell said the central bank would cut its interest rate gradually over time. Fed Chairman Powell added that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive actions to come, noting that future rate changes are likely to be more modest.

On Tuesday, Bank of England (BoE) policy spokesperson Megan Greene warned that a consumption-driven recovery in the United Kingdom (UK) could trigger a new wave of inflation. However, Greene noted that further interest rate cuts are likely as prices are “moving in the right direction,” according to Bloomberg.

BoE policymaker Greene also said he believed the neutral interest rate had risen since the inflationary shock. While most estimates suggest the neutral rate for the Bank of England is around 3.5%, Greene did not provide a specific figure. The neutral rate refers to the level at which a central bank’s policy neither stimulates nor constrains economic growth.

Traders are expected to pay close attention to the upcoming US ADP labor changes report and comments from Federal Reserve officials on Wednesday for further guidance on Wednesday. On the UK bank, the Bank of England’s Monetary Policy Report Hearings will be closely watched on Thursday.