- GBP/USD weakens amid heightened risk aversion driven by escalating geopolitical tensions in the Middle East.
- The US Dollar strengthens as Treasury yields climb further.
- The Bank of England adopts a cautious stance on rate cuts, citing ongoing high inflation in the services sector.
GBP/USD extends its decline for the third straight day, hovering around 1.3200 during Thursday's Asian session. The risk-sensitive pair faces downward pressure as safe-haven demand strengthens amid escalating tensions in the Middle East.
According to the Israeli Broadcasting Authority (IBA), Israel's security cabinet has decided to respond forcefully to a recent Iranian attack. On Tuesday night, Iran launched over 200 ballistic missiles and drone strikes against Israel.
Rising US Treasury yields are bolstering the US Dollar, further weighing on the GBP/USD pair. The US Dollar Index (DXY), which tracks the USD against six major currencies, has gained ground for the fourth consecutive session, currently trading around 101.80. US bond yields stand at 3.65% for the 2-year and 3.79% for the 10-year at the time of writing.
On the economic data front, the ADP US Employment Change report showed a rise of 143,000 jobs in September, surpassing expectations of 120,000. Additionally, annual pay increased by 4.7% year-over-year. The August figure was also revised upward from 99,000 to 103,000 jobs.
The Bank of England (BoE) continues to advocate a cautious approach to rate cuts, given the persistently high inflation in the services sector and relatively strong economic growth. In its quarterly statement released Wednesday, the BoE's Financial Policy Committee (FPC) noted that "risks to UK financial stability are broadly unchanged since June."
BoE policymaker Megan Greene cautioned that a consumption-led recovery in the UK could trigger another wave of inflation. However, she acknowledged that further rate cuts are likely as prices show signs of moderating.
