- GBP/USD pauses after Tuesday’s decline, caused by a surge in safe-haven demand for the US Dollar
- Iran stoked tensions in the Middle East with a massive missile attack on Tel Aviv.
- The continued divergence in monetary policy outlook may put a floor on GBP/USD’s losses.
GBP/USD pauses and swings between tepid gains and losses at 1.3280 on Wednesday after falling a full cent the previous day, when the US Dollar (USD) strengthened as a result of an increase in safe haven flows due to an escalation of the conflict in the Middle East.
Despite recent losses, GBP/USD is in an overall uptrend, which has seen it gain almost 5.0% from early August lows.
The night skies lit up on Tuesday night after Iran fired around 200 missiles, many of them ballistic, at the Israeli capital Tel Aviv, in retaliation for the assassination of Hezbollah leader Hassan Nasrallah. The situation remains tense after Israeli Prime Minister Benjamin Netanyahu vowed that Israel would avenge the attack and that Iran had “made a big mistake.”
The New York Times also reported that Israel is committing more troops to its bloody ground offensive in Lebanon, and with tensions rising, the dollar is likely to continue to receive support from investors seeking security. This, in turn, will likely limit any gains for GBP/USD.
The pair had been in a steady uptrend since early August due to the divergence in monetary policy outlooks in the UK and US. In the UK, the Bank of England (BoE) decided to hold interest rates on hold. unchanged at its September monetary policy meeting, while in the US the Federal Reserve (Fed) cut interest rates by a double dose of 50 basis points at its meeting. Lower interest rates are generally negative for a currency – in this case the Dollar – as they reduce capital inflows.
The BoE has been advocating a cautious, “stay the course” approach to reducing interest rates amid still high inflation in the services sector and relatively robust growth. In the US, by contrast, fears about a hard landing and a weak labor market briefly caused market-based bets to soar to 60% that the Fed would follow up with another 50 basis point cut at its meeting. November.
Although these bets have since moderated after US data reassured investors about the state of the economy, investors remain tense as they await key data on the labor market, in the form of Payrolls data. US Non-Agricultural Reports for September, which will be published on Friday.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
