The Pound to Dollar (GBP/USD) exchange rate advanced to highs just below 1.3350 last week amid a stronger tone in risk appetite and a weaker dollar.
There were, however, fresh losses to lows near 1.3200 on Thursday as a fresh spike in oil prices triggered dollar gains in global markets.
If GBP/USD dips below 4-month lows at 1.3160 recorded earlier this week, there will be fresh talk of a slide to 1.30.
Traders were spooked by the latest comments from President Trump who stated that attacks against Iran would intensify in the short term while there was no clear plan to re-open the Strait of Hormuz.
Hargreaves Lansdown senior equity analyst Matt Britzman “From a market perspective at least, the speech appeared to have the opposite effect investors were hoping for, with oil pushing higher, bond yields climbing, and equity markets falling back.”
Pepperstone senior research strategist Michael Brown noted; “Risk aversion is following the typical playbook that we’ve seen throughout the conflict. Crude rallying, and taking everything but the dollar lower in turn, with the greenback remaining the only real safe haven.”
UK equities did show some resilience which may limit Pound losses.
ING added; “USD‑bearish trades gathered further momentum yesterday on optimism around a potential Middle East de‑escalation. However, it didn’t get far after a new wave of escalation in US President Donald Trump’s speeches to the nation indicated more weeks of fighting, returning a risk-off sentiment to the market.”
MUFG commented; “the longer the conflict drags on the bigger the risks of more severe financial market conditions.
It added; “Until there is a clear plan to re-open the Strait and ease unprecedented energy supply restrictions, we remain concerned that the energy price shock will get worse before it gets better.”
MUFG expects a firm short-term US currency tone, but is still doubtful that the dollar can secure strong gains. Yields have moved against the US currency as traders price in European rate hikes.
It added; “US dollar strength could have been dampened recently by the pricing in of a higher US policy risk premium to reflect fresh uncertainty triggered by the Middle East conflict although it is difficult to quantify.”
Scotiabank is not convinced that the dollar can make significant or durable dollar gains; “Longer-term structural USD headwinds remain significant and more evidence of weaker US labour market trends may force a re-repricing of Fed rate cut expectations. In the shorter-term, dollar seasonality is about to tilt negative as April gets underway.”
