The Pound US Dollar (GBP/USD) exchange rate lost ground this morning, as conflict in the Middle East pushes investors toward safe-haven assets.
At the time of writing the GBP/USD exchange rate is trading at $1.21852, down roughly 0.5% from this morning’s opening rate.
US Dollar (USD) Boosted by Risk Aversion
The US Dollar (USD) rallied this morning, as investors flock to the ‘Greenback’ over its riskier peers amid oil price concerns.
Recent conflict in the Middle East has raised concerns that global oil prices could rise with the possibility of imposed sanctions and limited oil supply, further tightening the oil market.
In turn the US Dollar is rising, as the prospect of higher oil prices could underpin inflationary pressures, making a global recession more likely.
Kyle Rodda, senior financial market analyst at Capital.com explains how potential sanctions and oil supply shocks may impact trade:
‘For those with open positions in the market, there could be ongoing volatility as the situation unfolds. Crude prices could be one barometer of the situation as instability in the region increases, impacting trilateral talks between Israel, the US, and Saudi Arabia and relations between the West and Iran.’
With US bond markets closed today in observance of the US Columbus Day, attention remains on stock markets and index measures in the interim, which may further bolster USD today amid investors pooling towards the safe-haven USD.
Pound (GBP) Wavers amid Bleak UK Economic Outlook
The Pound (GBP) is once again muted against its peers this morning amid a lack of notable UK data, following geopolitical developments.
With oil prices rising over 3% this morning, it is likely that GBP will lose any traction gained last week.
This may cause the increasingly risk-sensitive Pound to dip, cementing ongoing fears of UK economic struggles.
Russ Mould, investment director with AJ Bell comments:
‘The wider risk is that a sustained increase in oil prices would act as a renewed inflationary pressure and further underpin the higher rates for longer message which investors in the equity and bond markets seem to be belatedly coming to terms with.’
With uncertainty already shrouding the UK economy, will Middle Eastern affairs trigger further weakness for GBP?
Pound US Dollar Exchange Rate Forecast: Fed Bets to Lift USD?
Looking ahead, several Federal Reserve policymakers are set to speak later today, namely Fed Logan, Fed Barr and Fed Jefferson. Any indication of hawkish movement within the central bank will potentially boost USD, underpinning this morning’s gains.
Also important in the US this week will be September’s producer price index. An expected slowing of US PPI could slightly undermine the ‘Greenback’s’ recent gains if cooler-than-expected inflation is shown in US factories.
Later in the week the UK’s monthly GDP figures for August are due out. With growth forecast at 0.2%, GDP data could boost the Pound.
Amid ongoing recession fears in the UK, an expansion of growth could provide some welcome relief for Sterling.