In recent developments, the British pound has been experiencing a notable downtrend, descending to 1.3403 on Thursday, which positions it close to its lowest point in four weeks. This decrease has been largely influenced by political instability within the United Kingdom and a surge in the demand for safe-haven assets, predominantly triggered by the escalating tensions between Israel and Iran.
Delving into the matter of political uncertainty, the UK has been navigating through a period of volatility marked by Brexit negotiations, leadership challenges within major political parties, and policy ambiguity. Such factors have instigated apprehension amongst investors, leading to fluctuations in the pound’s value.
In parallel to these political events, the conflict between Israel and Iran introduces a global dimension that affects financial markets worldwide. Investors often shift their resources to assets deemed safer during times of international discord, impacting currencies like the pound sterling.
Turning our attention to domestic economic policy, the Bank of England (BoE) convened for its monetary policy assembly, where it opted to maintain the current interest rates, aligning with the anticipations of many. The focal point has now migrated to the Bank’s future direction, particularly with rising oil prices clouding the inflation outlook, which may impede the timing of prospective rate reductions.
Market sentiment has been somewhat pessimistic concerning the pound’s performance, incorporating expectations of two rate cuts in the year 2025. This is set against a backdrop of lacklustre macroeconomic indicators in the UK and a comparatively more assertive stance from the Federal Reserve in the United States, which collectively exert downward pressure on the pound’s yield, reducing its attractiveness to investors.
Moreover, the strengthening of the US dollar on a broader scale has further contributed to the depreciation of the GBP exchange rate within the span of the latest 24 hours.
In an earlier response to the UK’s inflation metrics, which aligned with projections, it was noted that the annual inflation moderated to 3.4% in May, trimming down from 3.5% in April. Additionally, core inflation receded to 3.5% from 3.8%. Nonetheless, these figures comfortably exceed the BoE’s 2% inflation target, underscoring that any progress made is still insufficient to shift the Bank’s conservative approach to interest rate adjustments.
From a technical analysis perspective, the GBP/USD currency pair persists in its downward movement, aiming for a target of 1.3360, as deduced from various charts and indicators. According to the MACD indicator on the H4 chart, with its signal line positioned below zero and depicting a sharp downward trajectory, further declines appear imminent.
Should the pair achieve the 1.3360 level, there’s speculation of a forthcoming correction towards 1.3496, potentially preceding yet another downward movement towards 1.3240. Additionally, analysis of the H1 chart suggests the formation of a third wave of decline targeting 1.3373, with a pullback towards 1.3494 likely before an expected fifth wave downwards to 1.3360, corroborated by the Stochastic oscillator trends.
In conclusion, the GBP/USD currency pair continues to face downward pressures, with critical junctures identified at 1.3360 and 1.3240. A transient correction may occur ahead of further declines, a scenario reinforced by technical indicators.
This analysis underscores the intricate web of geopolitical, economic, and technical factors influencing the GBP/USD exchange rate. Investors and market observers must remain vigilant, considering the volatilities and uncertainties that persist in both the domestic and international arenas.
Disclaimer: The foregoing analysis represents the personal views of the author and should not be construed as financial advice. Neither the author nor the entity assumes responsibility for any trading losses incurred as a result of actions based on the information provided herein.
