British Pound loses ground below 1.3600 on US-Iran tensions, UK political pressure
- GBP/USD loses traction to around 1.3590 in Tuesday’s early Asian session.
- Trump's rejection of Iran's peace proposal renewed risk-off sentiment, supporting the US Dollar.
- UK Prime Minister Starmer is under pressure after heavy election losses.
The GBP/USD pair loses momentum to near 1.3590 during the early Asian session on Tuesday. The British Pound (GBP) weakens against the US Dollar (USD) as traders focus on key US economic data and Middle East geopolitical tensions.
The US Consumer Price Index (CPI) inflation report for April will be published later in the day. Markets expect the headline CPI to show a rise of 3.7% YoY in April, compared to 3.3% in March, while the core CPI is projected to show an increase of 2.7% YoY in April, versus 2.6% prior. A hotter-than-expected reading could bolster the Greenback as it would support the narrative of the Federal Reserve (Fed) keeping rates higher for longer.
US President Donald Trump has grown increasingly frustrated with how the Iranians are handling talks to end the conflict, and some Trump aides say that he is now more seriously considering a resumption of major combat operations than he has in recent weeks, per CNN. Meanwhile, Iranian Parliament speaker Mohammad Bagher Ghalibaf warned that Iran’s military was fully prepared to retaliate against any future attacks.
Over the weekend, Trump rejected new Iran peace proposals to end the war as "totally unacceptable.” Signs of prolonged conflict in the Middle East could support a safe-haven currency such as the Greenback in the near term.
UK Prime Minister Keir Starmer is facing rising pressure to set a date for his departure after elections across much of the country resulted in massive losses for his ruling Labour Party. While Starmer stated he will not resign, the resulting political "noise" and rising UK gilt yields have created localized pressure on the GBP.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in 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 economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, 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 but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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