GBP/USD retreats and snap three days of gains amid escalating Middle East conflict

• GBP/USD dips 0.30% to 1.2199, influenced by geopolitical tensions and contrasting economic indicators.
• Dallas Fed President Lorie Logan underscores restrictive policy and inflation focus, while UK data signals slowdown.
• GBP/USD lacks direction with upcoming UK GDP and US inflation data to provide a fresh impetus.

GBP/USD snaps three days of consecutive gains slumps on risk aversion spurred by the clash between Israel and Hamas after the latter struck an attack during the weekend. Consequently, risk-perceived currencies depreciated to the benefit of safe-haven peers, including the Greenback (USD). The GBP/USD is trading at around 1.2199, down 0.30%, after hitting a daily high of 1.2224.

Risk aversion dominates amid geopolitical unrest, divergent economic data weighed on GBP, as USD got boosted on safe-haven status

Wall Street is trading with losses, while the Volatility Index (VIX), also known as the fear index, climbs 5.28% to 18.41. recently, Dallas Fed President Lorie Logan commented that she’s focused on driving inflation down while adding that policy needs to be restrictive, although higher US yields could forgo another rate increase.

The latest week’s data in the US and UK front, favors GBP/USD downside. A hot US Nonfarm Payrolls report justifies the need to keep monetary policy at a restrictive level. Meanwhile, the UK’s economic data warrants the economy is slowing down, reigniting recession fears amongst analysts. Sources cited by Reuters commented that “no further rate hikes by the BoE” are expected.

Money market futures see it otherwise, with odds for December and February at 40% and 50%, respectively, that the Bank of England (BoE) would raise its Bank Rate. On the US side, the CME Fed Watch Tool portrays investors who remain skeptical. In fact, traders expect the US Federal Reserve’s (Fed) first rate cut by May 2024, with odds standing at 51.97%.

Aside from this, GBP/USD trades would take cues from economic data, with UK revealing its GDP figures for August, Industrial Production, Trade Balance, and Manufacturing Production. On the US Front, the docket will feature Fed speakers, September’s Producer Price Index (PPI), the Consumer Price Index (CPI), the latest Fed minutes, and Consumer Sentiment.

GBP/USD Technical Levels