GBP/USD falls on USD safe haven strength & ahead of the Spring Statement
GBP USD trades at a three-month low amid a resurgent U.S. dollar, which is gaining support from safe-haven flows amid escalating tensions in the Middle East.
The US dollar jumped 1% on Monday after the US and Israel launched coordinated strikes on Iran over the weekend, reportedly killing Iran's supreme leader. In retaliation, Tehran attacked US assets in neighbouring countries.
Not only is the US dollar benefiting from safe-haven flows, but it is also benefiting from surging oil prices, given that the US is a net oil exporter.
Meanwhile, pressure on the pound is being compounded by domestic political uncertainty after Labour's defeat in a key by-election, which lost a seat it had held for almost a century.
The results cast a cloud over PM Starmer and Chancellor Rachel Reeves and raise concerns they could be replaced as ministers push for higher fiscal spending.
Attention is now on the chancellor's spring statement, which is expected to be a non-event given that the autumn budget is the main fiscal event of the year and saw so many major policy announcements just 3 months ago.
The focus will be on the Office of Budget Responsibility, which will publish its forecasts on the economy and public finances
Attention will be on the formal assessment of whether or not the government will meet fiscal targets and also on how much headroom Reeves has to meet her fiscal rules in light of major public spending initiatives and U-turns on cost-cutting measures.
GBP/USD forecast – technical analysis
After running into resistance at 1.3870, GBP/USD rebounded lower, breaking below its rising trendline support, its 50 and 200 SMA. The price has fallen to 1.33, a 3-month low.
The break below key support levels, the bearish engulfing candle and the RSI below 50 keep sellers hopeful of further downside.
Support is seen at 1.3250 ahead of 1.32. A break below here could spark a steeper sell-off towards 1.30, the key psychological level.
Oil extends its rally. Is $100 coming?
Oil prices surging again on Tuesday, adding to strong gains yesterday, as the widening US-Israeli conflict with Iran and threats to shipping via the Strait of Hormuz heighten fears of supply disruption in the Middle East, the world's largest oil-producing region.
There are no signs of a quick de-escalation, and the Strait of Hormuz, a key choke point for oil and gas, was closed, indicating that Iran is willing to target energy infrastructure in the region, keeping upside risks and play.
Vessels were avoiding waterways through the Strait of Hormuz after warnings from Iran not to transit, and as insurers cancel their coverage, meaning global oil and gas shipping rates have soared.
There is still a very real risk that the conflict in the Middle East could escalate further, with Iran targeting additional energy infrastructure in the region, which could lead to reduced supply.
President Trump has acknowledged that the war could take some weeks. As a result, oil prices could continue to climb.
However, if there are any signs of de-escalation or the reopening of the street for most kids here, oil prices fall back below $65 relatively quickly.
Oil forecast - technical analysis
Oil broke out above its rising channel, and above its descending trendline dating back to 2022, jumping to a 9-month high of 75 before easing back to current levels around 73.50 at the time of writing. The RSI is in overbought territory, so there could be a period of consolidation.
Buyers will look to extend gains above 75.00 to bring 78.40, the June high, into focus ahead of 80.00.
Support is seen at 70.00, the upper band of the rising trendline and 69.20, yesterday’s low. A break below here sees the price re-enter the rising channel and opens the door to support at 66.00.
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