GBP/USD Swings On US-Iran Peace Talk Uncertainty

The Pound US Dollar (GBP/USD) exchange rate surged early last week, then marched lower as the session went on, amid confusion and scepticism over rumours that the US and Iran were discussing a peace deal.

WEEKLY RECAP:

The Pound (GBP) opened last week on the front foot, clawing back much of the ground it had lost at the tail end of the previous week as UK gilt yields retreated from recent peaks.

However, this rebound quickly lost momentum. Tuesday’s latest PMI figures pointed to a sharp deterioration in private-sector activity, with the ongoing conflict in the Middle East beginning to weigh heavily on business conditions.

Midweek trading saw GBP exchange rates move in a narrow range, even as the UK published its latest inflation figures.

Although February’s CPI release was somewhat overshadowed by the recent surge in energy prices, an unexpected rise in core inflation still strengthened expectations that the Bank of England (BoE) could deliver as many as three interest rate increases over the course of the year.

By the end of the week, Sterling faced renewed selling pressure after the latest retail sales data revealed a contraction in consumer spending for the previous month.

Meanwhile, the US Dollar (USD) had a volatile start to the week, initially firming amid a risk-off mood as markets reacted to US President Donald Trump’s threats over the weekend to ‘obliterate’ Iranian power plants.

USD then slumped later on Monday as Trump postponed these strikes and claimed the US and Iran had had ‘productive conversations’ on ending the war.

As the week progressed, market sentiment began to deteriorate. Despite rumours of negotiations and the US presenting a peace proposal to Iran, Tehran pushed back on Trump’s claims that the two sides were engaged in talks.

As risk aversion took hold, USD marched back towards its opening levels.

Near-Term GBP/USD Forecast

Looking forward, UK economic data is thin on the ground through much of the week. The only release of note is the final GDP growth rate for the fourth quarter, with the release only likely to impact the Pound if it deviates from the previous estimate.

In contrast, we have a flurry of US releases this week, starting with the latest job openings figure. Any signs of a softening labour market in February could dent USD.

Wednesday brings the US retail sales report for February and the ISM manufacturing PMI for March. Another contraction in sales growth and weakening factory activity could create further headwinds for the Dollar.

The key data release is Friday’s non-farm payrolls report, paired with the US jobless rate. Weak jobs growth and a rise in unemployment could see USD end the week on a sour note.

The ISM services PMI could also weigh on the ‘Greenback’, as markets expect a slowdown in activity in March.

Meanwhile, the Middle East crisis could continue to drive volatility, as geopolitical uncertainty and any new developments may trigger choppy movement in GBP/USD.