Pound Sterling Forecast: Profit-Taking Follows Mahmood-Fuelled Sterling Rally

– Written by


James Fuller

STORY LINK Pound Sterling Forecast: Profit-Taking Follows Mahmood-Fuelled Sterling Rally

The Pound US Dollar (GBP/USD) exchange rate moved lower on Thursday after the escalating conflict between the US and Iran prompted investors to pull back from riskier assets.

At the time of writing, GBP/USD was trading at $1.3499, down around 0.3% on the day.

The US Dollar (USD) traded higher on Thursday, benefiting from renewed demand for safe-haven assets as the conflict in the Middle East intensified.

Market sentiment had remained fairly steady following the resumption of hostilities between the US and Iran, but confidence weakened as the fighting showed signs of spreading.

The US widened its military campaign with strikes in northern Iran, while attacks were also reported around the Iranian capital, Tehran.

At the same time, US President Donald Trump warned that Iranian infrastructure, including bridges, could become targets. Tehran responded by threatening retaliatory strikes against infrastructure in Gulf states allied with the US.

As geopolitical tensions mounted, the ‘Greenback’ attracted stronger safe-haven flows.

The Pound (GBP) weakened on Thursday, with Sterling surrendering some of the gains recorded during the previous trading session.

The currency had jumped on Wednesday after reports indicated Shabana Mahmood had emerged as the frontrunner to serve as Chancellor in incoming Prime Minister Andy Burnham’s government, replacing Ed Miliband as the market’s expected choice.

Investors had been wary of the prospect of Miliband taking the Treasury role due to expectations he would favour a more relaxed approach to fiscal policy. Mahmood, however, is regarded as a more fiscally cautious candidate, helping to reassure markets and lift Sterling.

Despite this, the Pound failed to build on Wednesday’s rally, even after fresh figures showed the UK economy expanded by the expected 0.1% in May.

Instead, the previous day’s strong advance prompted some investors to take profits, leaving Sterling trading lower on Thursday.

Near-Term GBP/USD Forecast: Will Consumer Sentiment Boost the US Dollar?

Attention on Friday will turn to the latest University of Michigan consumer sentiment index, which is expected to be the day’s main economic release.

Economists forecast US consumer confidence to improve in July, with the index climbing from 49.5 to 51. If the figures meet expectations, they could lend additional support to the US Dollar.

At the same time, developments in the Middle East are likely to remain in focus. Any further escalation in geopolitical tensions could increase demand for the safe-haven ‘Greenback’.

For the Pound, the absence of notable UK economic releases may leave Sterling without a clear catalyst, although continued optimism surrounding the political outlook could help cushion any losses.

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TAGS: Pound Dollar Forecasts