Pound US dollar (GBP/USD) exchange rate plunges amid Middle East fears
(Updated 16:40, 01/10/24) The pound US dollar (GBP/USD) exchange rate has extended its downside today, slumping to an eight-day low, as the escalating conflict in the Middle East rattles markets.
Reports that Iran is planning an imminent missile strike on Israel have sparked widespread risk aversion this afternoon, as the ongoing conflict threatens to spiral into an all-out regional war.
Overnight, the Israeli military announced plans to launch a ground assault on southern Lebanon after weeks of airstrikes on the country.
Since then a senior White House official said the US believes Iran is preparing a ballistic missile attack against Israel, warning that such an action would have ‘severe consequences’. The US embassy in Israel has put out a security alert warning all US government employees and their family members to stay in place until further notice.
This latest escalation has led to widespread risk aversion, thereby weighing on the increasingly risk-sensitive pound (GBP) and supporting the safe-haven US dollar (USD). USD is also being buoyed by a slightly better-than-expect result from the latest Job Openings and Labor Turnover survey (JOLTs).
At the time of writing, GBP/USD is trading at $1.3272, having slumped almost 0.8% on the day to hit its lowest level in over a week. If Iran does strike Israel, the severity of the attack and the response from Israel and the US could create more fear in markets, thereby likely weighing on the pound US dollar exchange rate.
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Pound US dollar (GBP/USD) exchange rate weakens in risk-averse trade
The pound US dollar (GBP/USD) exchange rate fell this morning as a risk-off mood in markets weighed on the currency pairing.
At the time of writing, GBP/USD is trading at around $1.3332, down over 0.3% since this morning’s opening level.
Pound (GBP) softens amid souring mood
The pound (GBP) is struggling to attract support this morning as anxious investors shun the increasingly risk-sensitive UK currency.
Market risk appetite has shifted amid growing concerns about the escalating conflict in the Middle East, after Israel launched a ground invasion into southern Lebanon overnight following two weeks of airstrikes on the county, including its capital Beirut.
The Israeli military has said that its incursion is a ‘limited, localised and targeted’ operation to push Hezbollah fighters north of the Litani river and away from the Lebanon-Israel border. However, there are concerns that this latest development could mark a new stage in the wider regional conflict.
In addition, domestic UK data may be putting some pressure on the pound. The final British manufacturing PMI confirmed a slowdown in factory activity last month, which may be undermining GBP.
US dollar (USD) boosted by Fed comments
Meanwhile, the safe-haven US dollar (USD) is currently drawing support from the risk-off market mood.
The ‘greenback’ also remains buoyed following a speech from Federal Reserve Chairman Jerome Powell yesterday evening, in which he pushed back on bets for another bumper 50bps interest rate cut at the bank’s November meeting.
Powell said the Fed was not ‘in a hurry to cut rates quickly’. He added that if the US economy performs as expected, the bank would likely deliver two more smaller 25bps rate cuts by the end of the year.
These comments saw USD leap higher yesterday and continue to provide the American currency with support today. They are also likely contributing to the risk-off market mood.
GBP/USD exchange rate forecast: weak US data to dent the ‘greenback’?
Looking ahead, the US dollar could come under pressure later on if today’s scheduled data releases print as expected.
Due to be published at the same time this afternoon, the ISM manufacturing PMI for September and the Job Openings and Labor Turnover survey (JOLTs) for August are both predicted to show signs of a slowing US economy.
Analysts expect the PMI to reveal that American factory activity suffered its sixth consecutive monthly contraction in September. Meanwhile, the JOLTs figure is forecast to edge down, with job openings hitting a new lowest level since January 2021, thereby indicating a cooling labour market.
Such data could reignite bets on another 50bps rate cut from the Federal Reserve, potentially propelling the GBP/USD exchange rate higher.