Pound Sterling (GBP) declined significantly today, falling precipitously to fall under the 1.3550 barrier against the US Dollar (USD). This drop is happening at a time of strong risk-off mood due to worsening geopolitical tensions in the Middle East. Investors had an extreme negative response to all of these events. Consequently, the GBP/USD cross declined sharply, falling to almost 1.3530 in the morning European session.
My concern is that market analysts are already attributing the weakness of the Pound Sterling to increased risk aversion among investors. Today, fears about imminent retaliation from Iran after recent Israeli strikes have deepened jitters in the world’s financial markets. Iran has promised to retaliate. Traders are intently observing the situation, hoping to see direction on the spectacle these geopolitical manias will turn into.
The expectation is that the US sentiment data will soon weaken. This data would make a world of difference to help shape market dynamics in the current geopolitical turmoil. Turning to trade policy, the US trade policy is doubling down, with tariffs still under discussion and in effect after being tied up mercilessly in courts. According to analysts at the consulting firm McKinsey, effective tariff rates won’t peak until 2025. That’s a signal that the trade environment isn’t going to get better any time soon.
At the same time, EUR under pressure, with EUR/USD pair lingering near 1.1550 lows. The USD/SGD currency cross is still deep in the red as it corrects from the multi-year peaks seen earlier on this year. Technical indicators are bearish. Traders are looking to play it safe on the back of risk-off sentiment. Consequently, the Euro is continuing to feel downward pressure through Friday’s European session.
The market’s reaction to these latest developments underscores the growing link between international geopolitical events and domestic economic indicators. Even investors are facing their own vortex of uncertainty. These trade deals can be referred to as “largely symbolic” at best, indicating the lack of genuine progress made towards reducing trade tensions.
Continuing to watch as things develop, what is clear is that geopolitical and economic factors are influencing investor sentiment. Far-reaching implications expect sharp debate in capital markets in the coming days. Further, people are excited to see where everything goes next with Iran’s response to Israeli attacks and US trade policy usually.