The Pound retreated from a near three-week high on Tuesday as renewed Middle East tensions revived demand for the safe-haven US Dollar. Sterling still avoided sharper losses, cushioned by easing UK political risk after Keir Starmer's resignation.
The Pound US Dollar (GBP/USD) exchange rate weakened on Tuesday, slipping back after touching a near three-week high overnight, as a deterioration in risk appetite pressured the pairing. At the time of writing, GBP/USD was trading at $1.3371, down from an overnight peak of $1.3398.
Middle East tensions lift the Dollar
The US Dollar strengthened on Tuesday, recouping part of Monday evening's losses, as renewed Middle East tensions pushed investors towards safer assets. Sentiment weakened after two commercial vessels in the Strait of Hormuz were reportedly hit by projectiles overnight, including a Qatari LNG tanker.
Washington has accused Iran of carrying out the strikes, with the US expected to respond by targeting Iranian sites. The flare-up in geopolitical risk prompted a more defensive mood across global markets, lifting demand for the safe-haven Dollar.
Fading UK political risk cushions Sterling
The Pound held up relatively well despite a quiet UK data calendar. It has found support in recent sessions as domestic political uncertainty continues to ease: following Prime Minister Keir Starmer's resignation, several potential challengers have reportedly backed frontrunner Andy Burnham.
Markets responded positively to the prospect of a relatively orderly handover, with fears of a damaging leadership contest now seemingly fading. Burnham is widely expected to become Prime Minister without a contest, while keeping the government's existing fiscal rules in place.
Fed minutes and support levels in focus
Looking ahead, the Federal Reserve's June meeting minutes are due out on Wednesday evening and could move the Dollar; if they point to support among policymakers for further interest rate rises, the Greenback may strengthen. On the charts, how to trade GBP/USD hinges on nearby levels: the pair has staged a sharp bounce to congestion resistance at 1.3400, with support seen down at congestion around 1.3300.
With Labour leadership nominations set to open on Thursday, the Pound could struggle to find much upside even as the political risk premium fades.
Sources: Currency News UK, Continuum Economics (snippet-based)
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