GBP/USD declines as tensions escalate in the Middle East. The Gulf states are approaching direct engagement in the Iran conflict, as Saudi Arabia indicates a possible military transition. Market participants are anticipating the release of Tuesday’s flash S&P Global PMI data for March from both economies. The GBP/USD pair is experiencing selling pressure following a day of modest gains, currently trading around 1.3400 during the Asian session on Tuesday. The risk-sensitive pair experiences a decline as risk aversion escalates, driven by the increasing involvement of US-aligned Gulf states in the Iran conflict. A report indicates that Saudi Arabia is hinting at a possible military shift.
Israel initiated its most recent offensive against Iran, even as US President Donald Trump indicated a temporary halt in assaults on energy infrastructure following what he characterized as constructive discussions with Tehran. Nonetheless, Iran’s Foreign Minister Abbas Araghchi refuted any involvement with Washington. On Monday, Iranian Parliament Speaker Mohammad Bagher Ghalibaf stated that there had been no negotiations with the US.
In the meantime, senior military adviser Mohsen Rezaei indicated that the conflict is expected to continue until Iran is fully compensated for the damages sustained. Market participants are looking forward to the release of Tuesday’s flash S&P Global Purchasing Managers’ Index data for March, which is a key event on the calendar for both sides of the pair. The UK manufacturing PMI is anticipated to be 51.1, a decrease from 51.7, while the services sector is projected at 53.0 compared to the prior 53.9; any additional weakening could challenge the current hawkish stance of the BoE repricing.
The Bank of England maintained interest rates at 3.75% during its March meeting on Thursday, aligning with market expectations. BoE Governor Andrew Bailey indicated that the conflict in the Middle East will result in a “shock to the economy” and lead to increased inflation in the short term, emphasizing that ensuring safe shipping through the Strait of Hormuz is crucial for tackling escalating energy prices.