Downside Risks Remains; Position for the Drop

Eva Chen

Summary:

The Middle East conflict has hit the UK economy, causing stagnation and rising inflation.

BUY GBPUSD

EXP

PENDING

1.31300

Entry Price

1.36300

1.29700

1.31987 +0.00160 +0.12%

Pips

PENDING

1.29700

Exit Price

1.31300

Entry Price

1.36300

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.

Downside Risks Remains; Position for the Drop_1

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

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Risk Disclosure

The risk of loss in trading financial instruments such as stocks, FX, commodities, futures, bonds, ETFs and crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No decision to invest should be made without thoroughly conducting due diligence by yourself or consulting with your financial advisors. Our web content might not suit you since we don't know your financial conditions and investment needs. Our financial information might have latency or contain inaccuracy, so you should be fully responsible for any of your trading and investment decisions. The company will not be responsible for your capital loss.

Without getting permission from the website, you are not allowed to copy the website's graphics, texts, or trademarks. Intellectual property rights in the content or data incorporated into this website belong to its providers and exchange merchants.

Recent Searches

Top Searches

Markets

Analysis

User

24/7

Economic Calendar

Education

Data