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

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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.

Frequently Asked Questions for Pounds Sterling

The British pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all trades, averaging $630 billion per day as of 2022. Its key trading pairs are GBP/USD, also known as “Cable”, which represents 11% of FX, GBP/JPY or “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).

The most important factor influencing the value of the pound sterling is the monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its main objective of “price stability” – a steady inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the BoE will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider cutting interest rates to reduce credit so that companies borrow more to invest in growth-generating projects.

Data releases measure the health of the economy and can affect the value of the pound. Indicators such as GDP, manufacturing and services PMI and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment, it may encourage the BoE to raise interest rates, which will directly strengthen the GBP. Otherwise, if the economic data is weak, the pound is likely to fall.

Another significant release of data for the pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, its currency will only benefit from the additional demand created by foreign buyers looking to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

Vaseline2 weeks ago

0 3 minutes read

Frequently Asked Questions for Pounds Sterling

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