Pound Under Pressure Amid Hawkish Fed and Geopolitical Risks | Errante
- Market Analysis
Market Overview
The GBP/USD outlook has turned slightly bearish as the US dollar found support amid safe-haven demand and a cautious tone by the Federal Reserve. The pair continues to struggle above the 1.3400 area, as markets await the Bank of England rate decision due today.
Fundamental Analysis
The FOMC left interest rates unchanged at 4.25% – 4.50% in its recent meeting as expected. However, the accompanying statement by Fed Chair Jerome Powell carried a hawkish tilt. He indicated that the inflation still remains above the targets and Trump tariffs could reaccelerate the inflation. However, the Fed maintained the projection of two rate cuts by the end of 2025. But the next cuts primarily depend on the inflation and labor market data.
Meanwhile, the UK fundamentals provide weak support to the pound. The UK CPI figures surprised with a lesser decline but inflation is still trending lower. This has limited the pound’s rally, combined with poor GDP and labor data from last week. These indicators suggest that the Bank of England may not pause its rate-cut cycle and lean dovish in its policy statement.
Geopolitical tensions also complicate the outlook. The continued Iran-Israel conflict, entering in its seventh day, has exacerbated fears as the US is reportedly ready for military action if Iran does not surrender its nuclear program. Both Bloomberg and Wall Street Journal reported that the US President has approved potential strikes on Iran.
These developments have strengthened the US dollar due to safe-haven flows, putting further pressure on the pound.
