On Wednesday it fell to 1.3352 amid a general deterioration in the external environment and a decline in risk appetite. Escalating tensions in the Strait of Hormuz and Iran's attacks on facilities in Kuwait and Bahrain have led investors to shy away from riskier assets.
The pound had previously appeared more resilient, supported by the rise in oil prices above $72 per barrel and associated inflationary risks. Market participants are currently pricing in a roughly 76% chance that the Bank of England will raise rates before the end of the year, with the chance of it adjusting rates as early as November exceeding 50%.
Bank of England Governor Andrew Bailey recently confirmed that inflation remains on track towards the 2% target, but acknowledged that this process will take longer than expected. At the same time, the regulator sees no possibilities of reducing interest rates in the near future.
Political uncertainty in the UK has had a limited impact on the market so far. Prime Minister favorite Andy Burnham has not yet announced his candidate for Chancellor of the Exchequer. However, investors believe that much of the domestic political risk has already been priced into the pound's exchange rate.
Technical analysis
According to the GBP/USD 4H chart, the market is moving lower towards 1.3240. A wide consolidation range is forming around this level. An upward break from this range would open the way for a move towards 1.3480, while a downward break would suggest a fall towards 1.3290, with room for the trend to extend to 1.3090.
The MACD indicator supports this scenario, with its signal line above zero and pointing firmly downwards, reflecting continued bearish momentum.
On the H1 chart, the market has formed a compact consolidation range around the 1.3360 level, which currently extends to 1.3340. A bullish move towards 1.3360 is expected, followed by a fall to 1.3320. The stochastic oscillator confirms this scenario, with its signal line below 80 and trending downward towards 20, indicating increasing short-term bearish pressure.
Conclusion
The pound has retreated as deteriorating geopolitical conditions in the Middle East – including attacks on the Gulf States and rising tensions in the Strait of Hormuz – have dampened risk appetite. The pound had previously found support in rising oil prices and market expectations of further tightening from the Bank of England, with a 76% chance of a rate hike already priced in by the end of the year.
Governor Bailey's confirmation that inflation remains above target and rate cuts are not imminent has reinforced the hawkish outlook. While domestic political uncertainty seems already built into the price, the pound's short-term trajectory will depend on how geopolitical risks evolve. Technically, a further decline towards 1.3240 and potentially 1.3090 seems likely in the medium term.
By RoboForex Analysis Department
Disclaimer: Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
