Pound Weakens, Oil and the Fed Weigh
The pound weakened against the US dollar on Tuesday (July 7th) after tensions in the Middle East escalated. GBP/USD traded around 1.3373, down 0.11% on the day.
Pressure on the pound arose following reports of attacks on two ships in the Strait of Hormuz. This development prompted the market to seek safer assets, thus maintaining support for the US dollar. The US Dollar Index (DXY) edged up 0.05% to 100.93.
Tensions in Hormuz also pushed up oil prices. If energy prices continue to rise, inflation concerns could re-emerge. This could force the Federal Reserve to remain cautious and open the door to maintaining high interest rates for longer.
In terms of US economic data, the trade deficit widened in May to US$77.6 billion, from US$54.6 billion in April. This widening deficit occurred because imports increased while exports decreased. Additionally, the New York Fed's consumer expectations survey showed one-year inflation expectations rose from 3.5% in May to 3.7% in June.
The financial market now sees the probability of a Fed rate hike in September at around 60.42%. However, for the July 29 meeting, the probability of the Fed keeping rates unchanged remains close to 75%. In the UK, the economic calendar is relatively quiet, while Andy Burnham's statement committing to fiscal rules helped ease concerns about additional pressure on the pound. Overall, GBP/USD remains at risk of resistance as long as the dollar receives support from geopolitics, oil, and US interest rate expectations. (arl)
Source: Newsmaker.id
