• GBP/USD drops 0.49% as US-Iran war fuels risk aversion.
• DXY jumps toward 98.40, pressuring Sterling amid broad haven demand.
• Political strain on Keir Starmer and shifting Bank of England cut odds add downside risks.

GBP/USD retreats some 0.49% on Monday amid risk aversion sponsored by the conflict in the Middle East between the alliance of the US and Israel against Iran. Consequently, safe-haven peers like the US Dollar (USD) remain bid in the day, hence weighing on the pair. At the time of writing, the major trades at around 1.3400.

Sterling sinks on risk-off flows after US-Israel strike on Iran lifts haven demand for the Greenback

Over the weekend, the US and Israel eliminated Iran’s supreme leader, Ayatollah Ali Khamenei, increasing tensions in the Middle East. Iran retaliated and attacked a British air base in Cyprus, causing limited damage.

Consequently, geopolitical risks pushed the Greenback higher. The US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, gains 0.76% up at 98.39, a headwind for the British Pound (GBP).

Recently, S&P Global revealed that the February Manufacturing PMI in the US rose by 51.6, exceeding estimates and the previous print of 51.2. Traders are eyeing the release of the ISM Manufacturing PMI for the same period, expected to deteriorate from 52.6 to 51.8.

Aside from this, local elections in northern England weakened the position of Prime Minister Keir Starmer within his Labour Party, raising speculation that he could be replaced.

In the meantime, the Bank of England (BoE) member Alan Taylor said that it is difficult to tell the impact of the Middle East conflict. Expectations that the BoE will cut rates at the March 19 meeting edged lower from 84% to 48%, according to Prime Market Terminal.

Expectations that the Green’s party victory could push the government o move further to the left and increase spending, increases the premium on UK Gilts.

On Tuesday, the UK economic docket is absent. In the US, speeches by Federal Reserve officials would drive GBP/USD price action.

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3409. The pair sits below a descending resistance trend line from 1.3869 while still hovering above the longer-term rising support line from 1.3035, leaving the near-term bias mildly bearish within a broader uptrend structure. Price holds well above the clustered simple moving averages near 1.35, showing the broader trend remains positive, but the sequence of lower highs under the downward trend line caps upside attempts. The Fed Sentiment Index has eased from earlier peaks, aligning with fading bullish momentum and reinforcing the risk of further pullbacks while the pair trades under the descending cap.

Initial resistance emerges at the descending trend line, now intersecting near 1.3500, with a break above this barrier needed to refocus on 1.3680 and then 1.3835. On the downside, immediate support is seen at 1.3350, followed by the rising trend line coming from 1.3035, which underpins the broader bullish context. A daily close below the trend support would expose deeper retracement targets toward 1.3250 and then 1.3150, while holding above it keeps the current decline framed as a correction within the larger advance.

(The technical analysis of this story was written with the help of an AI tool.)