GBP/USD remains constrained beneath 1.3550, hovering just above two-week lows on Monday. Recent hostilities in Iran are impacting risk appetite and bolstering the demand for the safe-haven US Dollar. Fed’s Warsh increased expectations for an imminent rate hike following his remarks at Jackson Hole on Friday. The British Pound edges up on Monday but remains close to two-week lows against the US Dollar. Risk aversion stemming from renewed tensions between the US and Iran, coupled with increasing speculation regarding a potential rate hike by the US Federal Reserve in September, is contributing to the stabilisation of the Greenback’s declines at the week’s outset.
Investor sentiment toward risk appears to be subdued on Monday, in light of reports indicating that the US has initiated its first strike on Iran in approximately a month. This operation targeted missile launchers situated on Larak Island, where the Islamic Revolutionary Guard Corps was reportedly gearing up to deploy rockets intended for laying sea mines in the Strait of Hormuz. Tehran has reportedly retaliated by targeting US military installations in Jordan, as per source. The IRGC has pledged a “response and punishment” to the United States. The US Dollar concluded the previous week with considerable strength, supported by remarks from Fed Chairman Kevin Warsh at the Jackson Hole Summit, suggesting potential monetary tightening actions should inflationary pressures persist at elevated levels.
FX strategists note that “debasement concerns faded following Fed Chair Warsh’s Jackson Hole speech, with the USD strengthening, gold falling and the US yield curve flattening.” Warsh “stressed that inflation remains too high and remains the Fed’s primary concern.” This has reaffirmed the central bank’s commitment to achieving its “2% PCE inflation target,” say the analysts in a note. Against this backdrop, OCBC suggests that “USD dips may also prove more restrained for now, with USD bears likely needing softer US data to rebuild conviction.”
They add that “focus turns to incoming US labour and inflation data ahead of the Sept FOMC,” as markets reassess the near-term policy path in light of Warsh’s remarks and the evolving data pulse. The UK calendar is sparse on Monday, with market participants focusing on the G20 finance ministers’ meeting in North Carolina, commencing on that day. US Treasury Secretary Scott Bessent will endeavour to persuade the leading global economies, particularly China, to cut ties with Iran, while also addressing the escalating apprehensions regarding the surging US government debt and increasing bond yields.
