British Pound declines to near 1.3350 as US launches strikes on Iran

GBP/USD softens to around 1.3355 in Wednesday’s Asian session.
US launched strikes on Iran after tankers hit in Strait of Hormuz.
Burnham is widely expected to become Prime Minister by July 20.

Lallalit Srijandorn FXStreet

The GBP/USD pair loses traction to near 1.3355 during the Asian trading hours on Wednesday. The US Dollar (USD) edges higher against the British Pound (GBP) amid renewed geopolitical tensions after the US renewed strikes on Iran. The Federal Reserve’s (Fed) June meeting minutes will be published later on Wednesday.

Washington unleashed a new wave of strikes against Tehran on Tuesday and revoked a license allowing the country to sell oil after three tankers were attacked in the Strait of Hormuz, per Reuters. Geopolitical fears surge following this headline, supporting the Greenback as a safe-haven asset.

Westpac analysts said that concerns for the stability of the peace deal reemerged after Iran attacked ships crossing the Strait of Hormuz. "Concerns over the inflation outlook were in focus, seeing yields jump higher across the globe," they wrote.

The formal race to replace outgoing Prime Minister Keir Starmer begins on July 9. Frontrunner Andy Burnham is widely expected to become Prime Minister by July 20. The Cable might receive some support as the UK political landscape stabilizes. Investors are pricing out the domestic risk premium as Burnham anchors his position as the leader-in-waiting to succeed Keir Starmer.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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