The Pound US Dollar (GBP/USD) exchange rate slumped to its lowest level since mid-December on Monday as escalating conflict in the Middle East triggered a flight to safety. However, GBP/USD was able to bounce off its worst levels.
Pound to Dollar (GBP/USD): 1.33998 (-0.04%)
Euro to Dollar (EUR/USD): 1.16902 (-0.59%)
Dollar to Japanese Yen (USD/JPY): 157.3345 (+0.44%)
DAILY RECAP:
The US Dollar (USD) surged as this week’s session got underway, with investors responding to the US and Israeli strikes on Iran over the weekend.
The US launched a wave of airstrikes on Iran, killing Supreme Leader Ayatollah Ali Khamenei. In response, Iran and its allied militant groups launched attacks on US bases and American allies in the region.
The escalation triggered a flight to safety when markets opened on Monday, which reflected positively on the US Dollar.
Meanwhile, the increasingly risk-sensitive Pound (GBP) stumbled as the souring market mood dampened Sterling’s appeal.
GBP was able to bounce off its worst levels against the US Dollar, although the British currency remained significantly down from the start of the week.
A lack of UK economic data left the Pound relatively defenceless to the Dollar’s advance.
Near-Term GBP/USD Forecast: Spring Statement in Focus
Looking forward, GBP investors may focus on Chancellor Rachel Reeves’s Spring Statement on Tuesday and the accompanying forecasts from the Office for Budget Responsibility (OBR). While no big announcements are expected, Sterling could benefit from a slightly brighter outlook for the UK economy.
Meanwhile, the conflict in the Middle East could continue to drive markets. If tensions continue to escalate, a souring market mood could support the safe-haven US Dollar and weigh on the increasingly risk-sensitive Pound.
That said, Sterling could possibly find some cushioning if rising oil prices see markets push back bets on a Bank of England (BoE) interest rate cut, as higher crude prices could contribute to an acceleration in UK inflation.
