GBP to USD Forecast: Cable Reacts to Middle East Conflict Ahead of Central Bank Insights

Highlights

• GBP/USD witnessed a 0.37% gain on Friday, building on a 0.48% rise on Thursday.
• The fate of the GBP/USD pair is closely tied to unfolding Middle East conflict updates.
• BoE and Fed comments on the Middle East situation and possible impact on monetary policy need consideration.

Overview of the Friday Session

On Friday, the GBP/USD gained 0.37%. Following a 0.48% rise on Thursday, the GBP/USD pair ended the day at $1.22356. The GBP to USD pair dropped to a low of $1.21054 before climbing to a high of $1.22611.

Geopolitical Tensions to Thwart Pound Recovery

The Middle East conflict and the threat of a destabilizing Middle East region weighed on the GBP/USD pair.

Risk aversion fueled a flight to the safety of the US dollar as investors responded to the events in the Middle East. A surge in crude oil prices added to the negative market mood. Surging crude oil prices may offset the Bank of England’s (BoE) efforts to tame inflation.

Direction throughout the day will likely hinge on news updates on the conflict in the Middle East. An escalation would raise the risk of a destabilization in the region, which would weigh more heavily on the Pound.

There are no UK economic indicators for investors to consider. However, Monetary Policy Committee Member Catherine Mann is on the BoE calendar to speak today. Comments relating to the Middle East conflict and possible BoE responses will draw investor interest.

FOMC Member Speeches in Focus

Later today, FOMC members Michael Barr, Lorie Logan, and Philip Jefferson are on the economic calendar to speak.

Investors should consider the reaction to the US Jobs Report. Hawkish Fed comments in response to the jump on nonfarm payrolls will likely raise bets on a Fed interest rate hike.

Tighter labor market conditions would support wage growth. A pickup in wage growth will likely fuel consumption and demand-driven inflationary pressures. A more aggressive Fed rate path would raise borrowing costs, impacting labor market conditions and disposable income. A weaker labor market environment and lower disposable income would force consumers to curb spending.

However, comments relating to the Middle East conflict and possible impact on Fed policy intentions also need consideration.

Short-Term Forecast

Near-term GBP/USD trends hinge on updates from the Middle East. A threat of a wider regional conflict would drive demand for the safe havens, leaving the GBP/USD pair at risk of heavier losses.

GBP to USD Price Action

Daily Chart

The GBP/USD pair remained below the 50-day and 200-day EMAs, affirming bearish price signals. Significantly, the 50-day EMA pulled further back from the 200-day EMA after the bearish cross, a bearish signal.

Increased geopolitical tensions would support a GBP/USD move toward $1.20 and the $1.19055 support level.

However, easing geopolitical tensions and dovish Fed comments support a break above the $1.22150 resistance level. A move through the resistance level would bring the $1.23 level into view.

The 14-period daily RSI reading of 39.27 indicates a GBP/USD drop below $1.2150 before entering oversold territory.

4-Hourly Chart

The GBP/USD remains above the 50-day EMA while staying below the 200-day EMA, sending bullish near-term but bearish longer-term price signals. A GBP/USD move through the $1.22150 resistance level would give the bulls a run at the 200-day EMA.

However, a break below the 50-day EMA would support a move toward $1.21000. A drop below $1.21000 would bring the $1.19055 support level into view.

With an RSI reading of 54.61 for the 14-period 4-hourly chart, the GBP/USD might approach the $1.23 mark before entering overbought territory.