GBP/USD is tumbling over 0.40% on Friday as geopolitical tensions triggered a flow towards the US Dollar (USD) haven status after Israel launched an attack on Iran, which escalated the Middle East conflict. The pair traded near 1.3550s after hitting a three-year peak of 1.3632.
Israel's attacks targeted Iran's nuclear facilities, missile factories and military commanders, according to Israeli officials. Iran media revealed that explosions were heard in Tehran and Natanz, the latter being crucial for the Iranian nuclear program.
Consequently, Iran retaliated against Israel and sent over 100 drones towards Israel.
Aside from geopolitics, the Greenback was boosted by the latest University of Michigan (UoM) Consumer Sentiment report in June, which showed that households are becoming more optimistic about the economy. The index rose from 52.2 to 60.5, while inflation expectations decreased for one year, from 6.6% to 5.1%, and for a five-year period, from 4.2% to 4.1%.
Across the pond, the UK's economic docket was absent on Friday. Still, data during the week revealed that the economy is slowing. Manufacturing activity, employment and economic growth figures paint a difficult scenario for Chancellor Rachel Reeves, who announced the spending review.
In the short term, the path of least resistance is that the GBP/USD might continue to edge lower due to risk aversion. Additionally, divergence among central banks would favor the US Dollar, as Federal Reserve (Fed) officials adopted a more neutral to restrictive stance.
Meanwhile, the swaps markets had priced in 50 basis points of easing of the Bank of England (BoE) towards the end of the year.
Source: Fxstreet
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