Pound Sterling weakens compared to other major currencies as tensions rise in the Middle East

Pound Sterling Weakens Amid Heightened Geopolitical Tensions

The British Pound is lagging behind most major currencies, with the exception of those from Australia and New Zealand, slipping by 0.6% to approach 1.3400 against the US Dollar (USD) in late Asian trading on Monday. This decline comes as traders grow increasingly risk-averse in response to escalating conflict involving the United States, Iran, and Israel.

Over the weekend, the US and Israel carried out a series of missile and drone strikes targeting Iran, resulting in the deaths of several high-ranking officials, including Supreme Leader Ayatollah Ali Khamenei. In retaliation, Tehran pledged a forceful response to Khamenei’s execution, named Ayatollah Alireza Arafi as interim leader, and launched attacks against Israel and multiple US military installations across the Middle East.

Amid this turmoil, the US Dollar has benefited from its reputation as a safe-haven asset. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, has risen by 0.23% to nearly 97.85, despite retreating from earlier highs.

Domestic Economic Outlook in the UK

On the home front, Huw Pill, Chief Economist at the Bank of England (BoE), cautioned about persistent inflationary pressures in the UK. Speaking to the Parliament’s Treasury Committee on Friday, Pill noted that the pace of disinflation has been slower than expected and suggested that the BoE may have focused too much on inflation nearing its target instead of anticipating future trends.

Key US Economic Data Ahead

In the United States, market participants are awaiting the release of the ISM Manufacturing Purchasing Managers’ Index (PMI) for February, scheduled for 15:00 GMT. Expectations are for the Manufacturing PMI to ease to 52.3, down from January’s reading of 52.6.

Looking ahead, investors will closely monitor several US employment reports this week, with particular focus on the February Nonfarm Payrolls (NFP) data set to be published on Friday.