Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3500.
Add a stop-loss at 1.3300.
Timeline: 1-2 days.
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3300.
Add a stop-loss at 1.3500.
The GBP/USD exchange rate remained under pressure on Thursday morning as energy prices jumped amid the escalating situation in the Middle East. It dropped to 1.3370, down by 1.35% from its highest point this month.
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Inflation Risks Persist as US-Iran Crisis Escalates
The GBP/USD pair dropped as the US dollar index jumped to 101.13, its highest level in more than a week. This price action happened as investors reacted to the ongoing rhetoric between the US and Iran.
In a statement on Wednesday, President Donald Trump warned that the US would hit a bridge or power plant in Iran for any ship that Tehran attacked. In a separate statement, Iran’s Parliament speaker warned that no Gulf country would be able to export oil as long as the blockade continues.
Crude oil prices also continued rising as traffic through the Red Sea continued falling after Ansar Allah threatened to close it. As a result, there are concerns that Brent and the West Texas Intermediate (WTI) will continue rising in the coming days or weeks.
The GBP/USD pair reacted to the latest inflation report from the Office for National Statistics (ONS), which showed that the headline Consumer Price Index (CPI) eased to 2.6% in June from 2.8% in May. Core inflation also came in at 2.6%, unchanged from the previous month.
While the latest figures are encouraging, inflationary pressures could re-emerge as the ongoing conflict continues to pose risks to global energy prices and supply chains.
The ongoing crisis has pushed traders to predict that the Federal Reserve and the Bank of England will hike interest rates this year. A Polymarket poll shows that there are 66% odds that the Federal Reserve will hike rates this year. Odds that the BoE will hike remain at around 30%.
There will be no major macro data from the UK and the US today, with the focus being on next week’s Fed and BoE decisions.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has been in a strong downtrend in the past few days. It retreated from this month’s high of 1.3558 to the current 1.3375.
The pair has dropped below the 50-day Exponential Moving Average (EMA), a sign that the downward trend is continuing.
At the same time, the Average Directional Index (ADX) has dropped to 15.7, its lowest level since June 10. Therefore, the pair may attempt to bounce back today as investors buy the dip. If this happens, it may rebound to the psychological level of 1.3500.
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