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Downside Risks Remains; Position for the Drop
Summary:
The Middle East conflict has hit the UK economy, causing stagnation and rising inflation.
Buy
PENDINGGBPUSD
EXP
1.31300
Entry Price
1.36300
TP
1.29700
SL
1.31824 -0.00003 0.00%
--
Point
PENDING
1.29700
SL
CLOSING
1.31300
Entry Price
1.36300
TP
Fundamentals
The conflict in the Middle East impacted the UK economy in March, resulting in stalled economic growth and a sharp rise in inflation.
Output growth in both the manufacturing and service sectors has slowed to a crawl, with firms directly attributing losses to events in the Middle East—including elevated risk aversion among clients, surging price pressures, higher interest rates, and disruptions to travel and supply chains.
Inflationary pressures have intensified significantly due to rising energy prices and fractured supply chains.
The acceleration in manufacturing costs is particularly severe, marking the sharpest increase since the pound’s devaluation on Black Wednesday in 1992.
The overall economic and inflation impact depends not only on the duration of the conflict but also on how long energy markets and shipping routes remain disrupted. March PMI data clearly signal rising downside risks to growth and upside risks to inflation.
Bank of England Deputy Governor Sarah Breeden stated today that the “second-round effects” of the Iran-related energy shock are unlikely to become entrenched in the UK.
She noted that a weakening labor market, gloomy economic activity outlook, and reduced pricing power for businesses and workers would naturally act as a buffer against a wage-price spiral.
Nevertheless, Breeden offered a cautious assessment of the UK inflation outlook against heightened Middle East tensions at an event.
She did not signal an immediate policy tightening, instead pointing to the inherent fragility of the UK economy as a mitigating factor.
Breeden highlighted that the economic activity outlook was already “weak” even before the recent surge in energy prices, indicating soft demand in the UK that makes it difficult for businesses to pass higher costs onto consumers.
She explicitly stated that “it would be unwise to act” until the Monetary Policy Committee has sufficient information, adding that the BoE expects to have “more insight” by its April decision.
Market Comment: The BoE faces a challenging period, balancing growth and inflation risks in its policy setting. It aims to prevent a sustained surge in inflation while ensuring a hawkish rate outlook does not exacerbate recession risks.
Technical Analysis
GBPUSD maintains a neutral intraday tone for now.With the 1.3485 resistance level still intact, further downside is expected for GBPUSD.
A break below 1.3213 would resume the decline from 1.3865 toward the structural support at 1.3008, with a potential drop to the demand zone at 1.3124 before a rebound can materialize.
On the flip side, a near-term bottom would signal that the decline from 1.3868 has completed, paving the way for a recovery toward 1.3620, which is the 61.8% retracement of the 1.3865–1.3218 decline.
Trade Recommendations
Trade Direction: Buy
Entry Price: 1.3130
Target Price: 1.3630
Stop Loss: 1.2970
Valid Until: 2026-04-29 23:55:00
Support: 1.3212/1.3132/1.3040
Resistance: 1.3276/1.3329/1.3482
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