Pound Sterling stays weaker near 1.3500 as safe-haven demand lifts US Dollar

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GBP/USD pares its recent losses after opening at a gap down, still trading lower around 1.3500 during the Asian hours on Monday. The pair faced challenges as the US Dollar (USD) drew support from heightened safe-haven demand amid re-escalating United States (US)–Iran tensions.

GBP/USD remains in negative territory as the US Dollar gains on renewed US–Iran tensions.
Iran’s Baghaei says the US port blockade is aggression and a ceasefire violation.
Hormuz tensions lift oil, boosting inflation concerns and reviving BoE rate hike expectations.

The Guardian reported on Monday that Iran’s Foreign Ministry spokesman Esmail Baghaei said the US blockade of Iran’s ports and coastline is an act of aggression that violates the ceasefire. Baghaei posted on social media, "By deliberately inflicting collective punishment on the Iranian population, it amounts to a war crime and crimes against humanity.”

Iranian authorities had briefly indicated on Friday that the Strait would reopen, but reversed the move on Saturday after US President Donald Trump refused to lift the blockade on Iranian ports. Iran’s military stated that the US breached the ceasefire by firing on one of Iran’s commercial vessels and warned it would soon retaliate against it.

The Greenback strengthens against its major peers as markets price in a Federal Reserve (Fed) “higher-for-longer” stance, driven by persistent inflation and Middle East tensions. Traders will likely observe Tuesday’s US Retail Sales data, which is expected to rise 1.3% month-on-month (MoM) in March after 0.6% in February.

However, the Pound Sterling (GBP) may find support as renewed Strait of Hormuz tensions lift oil prices, which renewed inflation concerns and revive expectations of further Bank of England (BoE) rate hikes.

BoE Deputy Governor Sarah Breeden said on Friday that the ongoing Middle East conflict has increased the risk of overlapping market stresses. Breeden added, “The vulnerabilities that have preceded past crises have not disappeared.”

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.

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