The British pound retreated towards $1.35 after earlier reaching a three-year peak of $1.363, influenced by rising tensions in the Middle East. These geopolitical concerns have prompted investors to gravitate towards safe-haven assets due to fears of an expanding conflict. This shift followed an Israeli offensive targeting Iran's nuclear facilities and key figures, actions deemed essential by Israel to neutralize what it considers an existential threat. In retaliation, Iran launched hundreds of drones and indicated the possibility of further countermeasures.
Concurrently, recent data revealed a 0.3% month-over-month contraction in the UK's GDP for April, surpassing the anticipated 0.1% decline. This downturn was partly attributed to a significant reduction in exports to the US following the imposition of new tariffs. Indications of economic stress and decreased labor demand, underscored by employment statistics released on Tuesday, have heightened market speculation that the Bank of England may implement more substantial interest rate cuts than previously expected. Nevertheless, the pound is still finding support due to prevailing dollar weakness, driven by renewed US tariff threats and emerging signs of moderating inflation in the US.
