On Thursday, the Pound Sterling dropped once more against the US Dollar. That would make this its third consecutive day of declines. During European trading hours, the GBP/USD currency pair sank to levels approaching 1.3400, a clear sign that fear continued to settle over market participants. The drop comes after the Bank of England’s (BoE) surprise announcement that it would hold its base rate at 4.25%. Investors had widely anticipated this move, forecasting a 7-2 majority vote in favor of holding rates steady.
Against the backdrop of this choice, selling pressure on the GBP has intensified. Traders are especially interested in its behavior toward major currencies, responding to domestic macroeconomic data releases and outside geopolitical conflicts. The latest Middle East uproar added to a wave of helicoptering demand for such safe-haven assets. Consequently, the US Dollar has seen a strengthening, further adding upside potential USD currency pair.
Recent Market Movements
The GBP/USD pair has been bearish given its recent price action. It has dropped below the 20-day Exponential Moving Average (EMA), which is currently at 1.3480. Market analysts have observed that this shift in momentum could lead to further declines, with key resistance levels now established.
The two could have trouble climbing back, given the three-year high near 1.3630. This latter level is shaping up to be the key hurdle. Analysts at Deutsche Bank point to the May 16 low just under 1.3250 for the market’s focus. To them, it is a key defense line that might shore up the Pound in the short term.
Recent geopolitical events have led to the Pound Sterling weaken drastically. In fact, it is doing terribly even relative to safe-haven currencies such as the Swiss Franc. Ramped up risks from the US proxy conflict with Iran and new US military escalation in the Middle East loom and have upped volatility. As a result, countless investors are moving their investments to safer asset classes.
Bank of England’s Decision
On Thursday, the BoE opted to keep interest rates steady. This decision came after signs of a softening UK labor market had started to emerge. Data showed deep fissures in new job creation and wage increases. These problems were in part due to increasing contributions to social security schemes mandated on employers. At the same time, the MPC was clearly split over the need to discuss and actively discuss potential rate cuts. Three members—Swati Dhingra, Dave Ramsden, and Alan Taylor—voted in favor of more accommodative monetary policy.
This backdrop has led to increased chatter that more monetary easing could be in order if economic data continue to disappoint. Given how politically sensitive these developments are, analysts are on high alert about the risk that they could catalyze further losses in the GBP/USD rate.
“The effects of tariffs will depend on level, and increases this year will likely weigh on economic activity and push up inflation.” – Fed Chair Jerome Powell
Geopolitical Tensions Impacting Markets
Aside from homegrown economic factors, big external geopolitical tensions are at play in the currency markets. The proxy war between Iran and Israel has been raging for years but recently flared up. As press reports state, the United States is moving military assets into place to launch strikes against Tehran. This has started panic and speculation about escalating into a new regional war. In turn, investors are scrambling to seek safety in hard currencies such as the US Dollar.
They argue that deeper US involvement would stoke geopolitical tensions and add to safe-haven asset demand. As a side effect, the US Dollar has been much stronger, weighing on the Pound Sterling.
“We are postured defensively in the region to be strong, in pursuit of a peace deal.” – US Defense Secretary Pete Hegseth
Geopolitical concerns are at an all-time high, injecting newfound volatility into financial markets. This extra layer of instability is only adding to the further descent of the Pound against all their major peers.