GBP/USD Forecast: Dollar gains after Iran attack

• Iran attacked Israel with missiles, increasing the conflict in the Middle East.

• US job openings data showed better-than-expected labor demand.

• UK data revealed a drop in factory activity that weighed on the pound.

The GBP/USD forecast is headed south as the US dollar finds its shine amid escalating tensions in the Middle East. At the same time, sterling fell after weaker-than-expected UK manufacturing data raised the likelihood of a BoE rate cut.

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On Tuesday, Iran attacked Israel with missiles, adding to the conflict in the Middle East. For weeks, Israel has been fighting Hezbollah in Lebanon. Market participants worried about a wider war that could affect the global economy. As a result, risk appetite decreased and the dollar rose on safe haven demand.

In addition, US job openings data showed better-than-expected labor demand. Notably, vacancies rose to 8.04 million, beating forecasts of 7.64 million. A resilient labor market will allow the Fed to achieve a soft landing, with inflation reaching 2% and growth holding steady.

More support for the dollar came from Powell’s speech on Monday. The Fed chairman said the central bank would likely cut twice more this year by a total of 50 basis points. He therefore dismissed expectations for a massive rate cut in November.

Meanwhile, in the UK, data showed a drop in factory activity which weighed on the pound. Manufacturing PMI fell to 51.5 in September but remained in expansion territory. Meanwhile, traders continued to speculate on the upcoming budget on October 30. The new Chancellor of the Exchequer will announce new tax measures and spending plans that could affect the UK economy and the outlook for monetary policy. Consequently, it could cause a lot of volatility in the GBP/USD pair.

Key GBP/USD events today

• US ADP Non-Farm Labor Change

GBP/USD Technical Forecast: 1.3400 resistance triggers trend reversal

Technically, the GBP/USD price is in steep decline after breaking below the 30-SMA and its bullish channel. The previous uptrend failed to continue beyond the 1.3400 resistance level, where the bears took control. Moreover, the RSI made a strong bearish divergence, indicating the decline of the upward momentum.

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The price recently breached the 1.3301 support and paused to retest the level. It is trading well below the 30-SMA and the RSI is closer to the oversold region. Consequently, the bearish trend is strong and could lead to a retest of the 1.3200 support level.

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