British Pound softens to near 1.3500 as US, Iran escalate attacks

The GBP/USD pair declines to near 1.3510 during the early Asian trading hours on Wednesday. Ongoing tensions in the Middle East provide some support to a safe-haven currency such as the US Dollar (USD) against the British Pound (GBP). All eyes will be on the US August jobs report later on Friday. 

CNBC reported that the US and Iran traded a new round of attacks Tuesday, with American forces striking Iranian targets around the critical waterway and Tehran saying it had launched a retaliatory operation targeting US interests across the region.

US President Donald Trump said the strikes were in retaliation for Iran trying to put mines in the critical waterway and for an earlier attack on a military base. He warned of more attacks to come if Tehran responded. 

Bank of England (BoE) Governor Andrew Bailey downplayed the inflation threat, saying the United Kingdom (UK) is not yet experiencing significant second-round inflation effects. Markets are fully pricing in a 25 basis points (bps) hike this year and another by the spring, according to Bloomberg.

“We’re seeing quite subdued second-round effects; I think we’ve seen a softening labor market for some time now,” said Bailey. “I’ve taken the view that I think we can watch this situation for the moment,” he added. 

Downside risks persist for GBP as UOB keeps focus on 1.3480

Analysts at UOB Group maintain a cautious stance on the Pound, reiterating that while they had highlighted last Friday (28 Aug, spot at 1.3595) that GBP “could edge lower,” they initially expected “any decline could be contained within a 1.3550/1.3645 range.” However, after GBP dropped to a low of 1.3527, they noted yesterday (31 Aug, spot at 1.3540) that “the risk remains on the downside, and the level to watch is 1.3480.” UOB adds that they “will continue to hold the same view as long as GBP holds below 1.3600,” keeping 1.3600 unchanged as the “strong resistance” level.

Technical Analysis: GBP/USD

In the daily chart, GBP/USD holds above the 100-day simple moving average (SMA) at 1.3443 and the lower Bollinger Band, keeping a modestly bullish near-term bias while it consolidates just under the Bollinger mid-line. The Relative Strength Index (RSI) around 48 suggests neutral momentum, hinting that bulls retain structural support but lack a clear impulsive drive for now.

On the topside, initial resistance is located at the Bollinger middle band around 1.3550, with a stronger hurdle at the upper Bollinger Band near 1.3665, where prior upside attempts could face renewed supply. On the downside, immediate support is aligned with the current price area and recent pivot zone around 1.3510, ahead of a more important floor created by the 100-day SMA at 1.3445 and the nearby lower Bollinger Band at 1.3435; a daily close below this cluster would weaken the constructive tone and expose deeper losses.