The Impact of Geopolitical Risks and Central Bank Policies on GBPUSD

The rise in GBP/USD is attributed to the U.S. direct involvement in the Israel-Iran conflict. The Trump administration, without congressional authorization, chose to launch a series of attacks on Iranian nuclear facilities, which led to a noticeable increase in oil prices. Traders' concerns about the situation in the Middle East intensified, especially following Iran's retaliatory attacks on U.S. air bases in Qatar. In this tense environment, all parties have tentatively agreed to a ceasefire, and negotiations between Iran and Israel are expected to begin soon. The evolution of the Middle East conflict has caused a bearish pivot in the U.S. dollar market. Traders expect a slowdown in missile attacks, leading to a decrease in safe-haven demand for the dollar. This shift has allowed GBP/USD to return above the 1.3500 level, reflecting a reassessment of risk by the market. Traders are increasingly looking to other currencies as safe-haven assets in light of potential geopolitical risks.

Bank of England Governor Andrew Bailey will testify before the Economic Affairs Committee in the UK Parliament. Recently, the UK economy has shown signs of weakness, and Bailey's remarks will be closely watched. He is expected to continue conveying the central bank's policy stance in his testimony, especially given the increasing uncertainty in the economy, making market expectations for policy direction even more crucial. Meanwhile, Federal Reserve Chairman Jerome Powell will also testify before congressional and Senate economic committees, commencing two days of speeches. This series of testimonies is likely to have a profound impact on the market, particularly regarding how Powell responds to Trump's criticism of the Fed's reluctance to cut rates. Trump believes that rate cuts would help push his budget deficit expansion plans, making the Fed's stance a significant point of interest.

In early trading this week, GBP/USD failed to break the short-term technical resistance at 1.3600. However, after an early morning drop, the exchange rate rebounded at the critical level of 1.3400. This rebound propelled GBP/USD's continued rise at the beginning of the week. If GBP/USD can maintain above 1.3500, it may further challenge the higher resistance level of 1.3600.

The current market environment indicates that investors are taking a cautious approach towards future movements, particularly given the frequent geopolitical risks and economic data releases. As new economic data and central bank policy developments are set to be announced, market participants need to closely monitor how these factors will influence the trajectory of GBP/USD.

‍