The Pound Sterling (GBP) appreciated by over 0.20% against the US Dollar (USD) on Tuesday, trading at 1.3241, as speculation about a potential ceasefire in the Middle East initially boosted risk appetite and eased fresh fears in the market [1]. However, newswires later reported that the chances of a ceasefire deal are slim, increasing the likelihood of a US attack as Donald Trump's deadline approaches, which led to GBP/USD trimming some of its earlier gains [1].
Risk appetite deteriorated further amid escalating conflict in the Middle East, with oil prices rising. Despite the positive correlation between the US Dollar and WTI crude, the US Dollar Index (DXY) fell by 0.14% to 99.84, indicating that the Greenback failed to gain traction [1]. Earlier events included a US attack on Kharg Island and Iranian retaliation against US interests in the United Arab Emirates, Iraq, and Saudi Arabia. Diplomatic talks between the US and Iran were reported as closed, but the Tehran Times denied this, stating that indirect channels of communication remain open [1].
US economic data showed that Durable Goods Orders in February contracted for the second consecutive month by 1.4%, which was below estimates for a 0.5% decline. However, core goods expanded by 0.8% month-over-month, exceeding the 0.5% estimate [1]. New York Fed President John Williams commented that the energy shock will drive up overall inflation, expecting headline inflation to be elevated in the middle of the year and to rise by 2.75% for the year. He also stated that monetary policy is "where it is needed to be" [1]. The New York Fed Survey of Consumer Expectations in March indicated rising inflation expectations, with one-year expectations up to 3.4% from 3% in February, three-year expectations up to 3.1% from 3%, and five-year expectations unchanged at 3% [1].
In the UK, business activity in the services sector slowed sharply to an 11-month low in March, as the S&P Global Services PMI dropped from 53.9 to 50.5. Input prices rose, increasing the risk of a stagflationary scenario in the UK [1]. Despite the initial rally, GBP/USD is trimming gains as the US Dollar recovers some ground amid growing speculation that the chances for a ceasefire deal are low, according to MS NOW citing diplomats [1]. On the technical front, GBP/USD trades at 1.3245 with a mildly bearish near-term bias, as it remains below key resistance levels and moving averages, indicating a rejection of prior upside attempts and continued oscillation beneath the moving-average band [1].
CONCLUSION
GBP/USD initially climbed on ceasefire hopes in the Middle East but trimmed gains as the likelihood of a deal diminished and geopolitical tensions escalated. Rising oil prices and deteriorating risk appetite weighed on the market, while US and UK economic data pointed to inflationary pressures and slowing business activity. The market remains cautious, with GBP/USD facing resistance and a mildly bearish outlook.