GBP/USD pares recent losses from the previous session, trading around 1.3370 during the Asian hours on Friday. The pair strengthens as the US Dollar Index (DXY) retreats after gaining nearly 0.5% on Thursday. However, the US Dollar could regain support amid escalating geopolitical tensions in the Middle East.
Traders are likely awaiting another key US inflation release. January’s Personal Consumption Expenditures Price Index (PCE), the preferred inflation gauge of the Federal Reserve (Fed), is due later in the day, though it will not reflect the impact of the Iran war. Markets will also monitor the first revision of fourth-quarter US GDP growth and March consumer confidence.
Safe-haven demand for the Greenback remains supported by surging oil prices. Iran’s new supreme leader, Mojtaba Khamenei, said in his first public remarks since his appointment that the closure of the Strait of Hormuz should continue as a “tool to pressure the enemy.” Khamenei also warned that all US military bases in the region should be closed immediately or face potential attacks.
Futures markets and economists expect the Federal Reserve to keep interest rates unchanged at next week’s policy meeting, with the benchmark federal funds rate currently at 3.50%–3.75%.
Meanwhile, markets are increasingly confident that the Bank of England (BoE) will cut interest rates at next week’s policy meeting. However, rising inflationary pressure from higher oil prices has clouded the outlook, prompting expectations that policymakers may remain cautious and potentially delay rate cuts.
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