Gulf Tensions Lift Dollar, Pound Loses Momentum
The pound weakened on Tuesday in Asia, with GBP/USD again under pressure and hovering around 1.3400 after posting modest gains the previous day. The decline occurred as risk sentiment worsened following reports that US-aligned Gulf states were moving closer to direct involvement in the Iran conflict, including signs of a potential shift in Saudi Arabia's military stance.
On the ground, Israel continued its latest attacks on Iran despite US President Donald Trump's earlier signal of a pause in attacks on energy infrastructure after describing "productive" talks with Tehran. However, Iranian Foreign Minister Abbas Araghchi denied any involvement with Washington, and Parliament Speaker Mohammad Bagher Ghalibaf also asserted there were no negotiations with the US.
Tehran's tone also suggested the conflict was not nearing an end. Senior military adviser Mohsen Rezaei said the war would continue until Iran received full compensation for the damage, prolonging uncertainty that has kept markets on the defensive and boosted demand for the dollar.
Market focus now shifts to activity data. Market participants await the preliminary release of the S&P Global PMI for March on Tuesday, which will determine whether the UK economy shows further slowdown. The UK manufacturing PMI is expected to be 51.1 (down from 51.7) and the services PMI to be 53.0 (down from 53.9). Weaker-than-expected results risk testing the hawkish repricing that had previously supported the pound.
On the policy front, the Bank of England held interest rates at 3.75% last week, as expected. BoE Governor Andrew Bailey warned that the Middle East conflict would be a "shock" to the economy and drive inflation in the near term, making restoring shipping security in the Strait of Hormuz key to curbing rising energy prices.
With a combination of geopolitical risks and domestic data testing, GBP/USD tends to react to two main channels: shifts in global risk sentiment (the dollar as a safe haven) and changes in UK interest rate expectations if the PMIs confirm a slowdown. As long as the Iran-Hormuz uncertainty persists, the pound's recovery potential will remain limited.
Source: Newsmaker.id
