GBP/USD slipped on Thursday as escalating US-Iran fighting drove investors into the safe-haven dollar. The pair traded near $1.3499, down around 0.3% on the day, as profit-taking erased part of Wednesday’s Mahmood-fuelled rally.
The Pound-to-Dollar exchange rate fell to $1.3499, down around 0.3% on Thursday, as the escalating conflict between the US and Iran pushed investors out of riskier assets. The US Dollar climbed on renewed demand for safe-haven assets as the fighting in the Middle East intensified.
Middle East escalation lifts the dollar
Market sentiment had held fairly steady after hostilities between the US and Iran resumed, but confidence weakened as the conflict showed signs of spreading. The US widened its campaign with strikes in northern Iran, and attacks were also reported around Tehran.
US President Donald Trump warned that Iranian infrastructure, including bridges, could become targets. Tehran responded by threatening retaliatory strikes against infrastructure in Gulf states allied with the US. As tensions mounted, the greenback attracted stronger safe-haven flows.
Profit-taking unwinds the Mahmood rally
The Pound surrendered some of the gains it recorded in the previous session. Sterling had jumped on Wednesday after reports indicated Shabana Mahmood had emerged as the frontrunner for Chancellor in incoming Prime Minister Andy Burnham’s government, replacing Ed Miliband as the market’s expected choice.
Investors had been wary of Miliband taking the Treasury role because they expected him to favour a more relaxed approach to fiscal policy. Mahmood, by contrast, is regarded as a more fiscally cautious candidate, which helped reassure markets. Yet the Pound failed to build on the rally even after figures showed the UK economy expanded by the expected 0.1% in May, as some investors chose to take profits.
What comes next for GBP/USD
Attention on Friday turns to the University of Michigan consumer sentiment index. Economists forecast the index to climb from 49.5 to 51 in July, and figures that meet expectations could lend further support to the dollar. Further escalation in the Middle East may also increase demand for the safe-haven greenback.
For the Pound, the absence of notable UK releases may leave GBP/USD without a clear catalyst, though continued optimism around the political outlook could cushion any losses.
Source: CurrencyNews.co.uk
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