The Pound to Dollar (GBP/USD) exchange rate weakened on Thursday as escalating conflict in the Middle East drove investors towards the safe-haven US Dollar despite another positive UK political development.
At the time of writing, GBP/USD was trading at $1.3499, down around 0.3% on the day.
Pound to Dollar (GBP/USD): 1.347769 (-0.46%)
Euro to Dollar (EUR/USD): 1.14428 (-0.23%)
Dollar to Yen (USD/JPY): 162.36824 (+0.19%)
DAILY RECAP:
The safe-haven US Dollar (USD) found some support on Thursday, as escalating tensions in the Middle East soured the market mood.
Sentiment had been relatively resilient since the US and Iran renewed hostilities, but with the fighting intensifying, risk appetite began to fade.
The US expanded its attacks into northern Iran, with strikes also hitting around the Iranian capital of Tehran.
US President Donald Trump also threatened to target Iranian infrastructure, such as bridges, with Tehran vowing to retaliate by targeting infrastructure in US-allied Gulf states.
With the conflict escalating, the US Dollar firmed amid renewed safe-haven demand.
Meanwhile, the Pound (GBP) edged lower as Sterling gave back part of the strong gains it posted in the previous session.
The UK currency had surged on Wednesday after reports suggested Shabana Mahmood had overtaken Ed Miliband as the leading contender to become Chancellor under incoming Prime Minister Andy Burnham.
Markets had been uneasy about the prospect of Miliband taking the role, amid expectations he could favour looser fiscal policy. By contrast, Mahmood is viewed as a more fiscally orthodox choice, with reports of her likely appointment proving reassuring for investors.
Even so, Sterling was unable to extend its advance on Thursday, despite UK GDP data matching expectations with a modest 0.1% expansion in May.
Instead, traders appeared to lock in profits after the previous day’s rally, leaving the Pound on the back foot.
Near-Term GBP/USD Forecast: Consumer Confidence to Support the US Dollar?
Looking ahead, the key data release on Friday will be the University of Michigan’s latest consumer sentiment index in the US.
Markets expect American household morale to have improved in July, with the index set to rise from 49.5 to 51. This could underpin the US Dollar.
Meanwhile, market risk appetite may also influence the safe-haven ‘Greenback’. If geopolitical tensions escalate further, an anxious mood may support USD.
As for the Pound, a lack of UK data could limit Sterling. That said, political optimism may continue to provide some support for GBP.
