GBP/USD Weekly Forecast: Pound Sterling Faces Continued Downward Pressure

The Pound Sterling (GBP) continued its decline against the US Dollar (USD) this week, pushing the GBP/USD pair to levels not seen since late November 2023.

Factors contributing to the Pound’s decline included escalating tensions in the Middle East and a more hawkish outlook from the US Federal Reserve (Fed) regarding interest rates. These developments bolstered demand for the US Dollar at the expense of the Pound Sterling, as investors sought safer assets amid uncertainty.

The week began with concerns over a potential conflict in the Middle East following Iran’s drone attacks on Israel, reportedly in retaliation for an earlier incident involving Iran’s consulate in Damascus. Despite assurances from Iran that it did not seek further escalation, the situation remained tense, with the US announcing new sanctions against Iran’s missile and drone program.

Market sentiment took a further hit midweek after Fed Chair Jerome Powell struck a surprisingly hawkish tone in his speech, indicating that recent inflation data had not convinced policymakers to ease policy soon. This dampened expectations of Fed rate cuts, boosting the US Dollar and further pressuring the Pound.

As the week progressed, news of Israel’s missile strike on Iran’s central city of Isfahan added to geopolitical tensions, prompting investors to flock to the safety of the US Dollar. Consequently, the GBP/USD pair fell to a five-month low below the 1.2400 threshold.

On the UK front, the Pound attempted a recovery following the release of lower-than-expected inflation data for March. However, the rebound was short-lived as sellers remained active near the 1.2500 level. Despite the CPI rising at a slower pace in March compared to February, money markets now anticipate the Bank of England (BoE) to cut rates in November, rather than September as previously expected.

Looking ahead, attention will be focused on US economic data releases, as the UK calendar remains relatively quiet. Key events include the S&P Global Preliminary Manufacturing and Services PMI data for April, US Durable Goods Orders for March, and the Advance first-quarter US Gross Domestic Product (GDP) report. Additionally, market participants will closely monitor speeches from BoE policymakers and developments in the Middle East for further cues on GBP/USD movement.

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