During Thursday's Asian trading session, the British pound to US dollar (GBP/USD) experienced a volatile decline, falling below the 1.3400 level. As tensions between the United States and Iran escalated once again, global market risk appetite notably diminished, leading to a rapid increase in safe-haven demand for the US dollar. This has placed selling pressure on risk-sensitive currencies such as the pound.
The US military recently conducted another military strike against Iranian targets, focusing on facilities deemed to threaten US troops and commercial shipping security. The US stated that this action was "defensive in nature," aimed at maintaining the ceasefire situation and ensuring the safety of shipping through the Strait of Hormuz.
Simultaneously, former US President Donald Trump expressed a desire to reach a "favorable agreement" to end the conflict with Iran, warning that Iran's strategy of attempting to force US concessions by stalling would not succeed. The market believes that significant differences remain between the US and Iran, making a rapid de-escalation of Middle Eastern tensions unlikely in the short term.
The Strait of Hormuz handles approximately 20% of the world's seaborne crude oil shipments. Consequently, any military risks involving this region can quickly impact global energy markets and financial market risk sentiment. With international oil prices rising again, concerns about a resurgence in global inflation have notably intensified.
Against this backdrop, the US Dollar Index (DXY) continues to strengthen, maintaining its position near the high level of 99.50. As the US dollar holds the status of a global reserve currency and safe-haven asset, international capital typically flows back into dollar-denominated assets when market risk sentiment deteriorates.
At the same time, elevated US Treasury yields further enhance the attractiveness of dollar assets. The market is currently awaiting the release of the US April Personal Consumption Expenditures (PCE) Price Index data later in the day to gauge the Federal Reserve's future policy direction.
Market expectations suggest the US PCE inflation annual rate may rise to 3.8%, up from the previous 3.5%, while the core PCE annual rate is forecast to climb to 3.3%. Since the PCE is one of the Federal Reserve's most closely watched inflation indicators, this data could directly influence the market's repricing of the future interest rate path.
If US inflation continues to exceed expectations, market bets on the Federal Reserve maintaining high interest rates or even implementing further hikes may intensify. This would provide additional support for the US dollar's rise and exert greater pressure on GBP/USD.
On the other hand, the pound's own fundamentals have recently shown signs of weakness. Previously released UK inflation data came in below market expectations, while the unemployment rate unexpectedly rose to 5.0%, indicating initial signs of cooling in the UK labor market.
Against the backdrop of weakening economic data, the market has significantly lowered expectations for future interest rate hikes by the Bank of England. Analysts point out that traders have already reduced their bets on the number of Bank of England rate hikes expected by 2026, while UK government bond yields have recorded one of their largest weekly declines since the end of 2023.
Market research firm Pantheon Macroeconomics stated that the decline in UK gilt yields was primarily driven by the earlier drop in international oil prices, a reduction in UK political uncertainty, and stable fiscal policy expectations.
As the UK's yield advantage diminishes, the pound's attractiveness relative to the US dollar declines concurrently. Furthermore, if UK economic growth continues to slow, the Bank of England's future policy space may become further constrained.
From a daily chart perspective, GBP/USD has recently retreated from its recent highs and is gradually moving towards key support areas. The MACD indicator has continued to decline after forming a bearish crossover at a high level, indicating a weakening of medium to long-term upward momentum. The current exchange rate has already broken below short-term moving average support, with the overall technical structure beginning to tilt bearish.
The first key support below is located in the 1.3350 area. A break below this level could see the exchange rate further test the 1.3300 psychological level. Resistance above is observed at the 1.3450 and 1.3500 areas; only a sustained move above these zones could potentially restore short-term rebound momentum for the pound. However, given the exchange rate's consecutive days of decline, if the US PCE data falls short of expectations, the US dollar might experience a phase of correction, potentially triggering a technical rebound for the pound.
Additionally, changes in global market risk sentiment warrant attention. If the Middle East situation deteriorates further, the safe-haven US dollar could continue to attract capital inflows. Conversely, if geopolitical risks ease and market risk appetite improves, it could help alleviate some pressure on the pound.
Overall, GBP/USD is currently in a phase of dual pressure from "strengthening safe-haven US dollar" and "weakening UK economic data." The upcoming US PCE data and developments in the Middle East situation will be crucial factors determining the exchange rate's next directional move.
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