Amid ongoing geopolitical tensions, the UK's increasing vulnerability as a major energy importer is becoming more pronounced. Oxford Economics estimates that a two-month disruption of shipping through the Strait of Hormuz could potentially raise UK inflation by 0.4 percentage points. "The UK is highly exposed on energy costs," said Chris Beauchamp, Chief Market Analyst at IG. "There are real fears that we could see a material slowdown in the economy." This concern is beginning to be reflected in recent economic data. A fresh survey by Barclays shows that British consumer confidence has plunged sharply since the start of hostilities between the US, Israel, and Iran in late February. A key index tracking UK confidence fell to a four-month low in March, reversing gains made since the start of the year. Approximately eighty percent of British respondents expressed worries that the Middle Eastern war could drive up inflation, particularly for fuel and energy bills, with nearly half already taking steps to adjust, such as reducing energy consumption or cutting back on non-essential spending. The latest economic forecast from the British Chambers of Commerce (BCC) incorporates the situation in the Middle East, revising UK GDP growth for 2026 down to 1% from 1.2% and projecting an average annual inflation rate of 2.7%, higher than previously expected. David Bharier, Head of Research at the BCC, noted that conflict involving the US, Israel, and Iran could disrupt the UK's progress on inflation, with related energy price rises potentially keeping inflation persistently above the 2% target and leading the Bank of England (BOE) to maintain its current policy rate for longer than anticipated. This assessment aligns with the market's repricing of the BOE's policy path. A recent report from BNP Paribas forecasts the Bank will keep rates on hold in March, completely overturning the previous market consensus for a cut. The report points out that even as headline CPI cools, stubborn services inflation and rental components will constrain the Bank's room for maneuver. Pricing in derivatives markets indicates investors now expect only one 25-basis-point rate cut from the BOE before December of this year, whereas just weeks ago, the market had widely anticipated two reductions within the year.

Although the U.S. Consumer Price Index data for February released that day showed a moderation in inflation, the market's focus has shifted entirely to the potential impact of geopolitical tensions on global energy trade. The dominant logic driving the U.S. dollar has moved from "data dependence" to "safe-haven driven." Data released by the U.S. Labor Department on Wednesday showed CPI rose 0.3% month-on-month, with core CPI increasing 0.2%. The rise in rent saw its smallest gain since January 2021. On a year-over-year basis, CPI rose 2.4% and core CPI rose 2.5%, both unchanged from January. The data itself signaled a positive development that inflationary pressures had not intensified. However, this report was quickly overshadowed by geopolitical conflict. Military actions by the U.S. and Israel against Iran have already pushed crude oil prices significantly higher, with Brent crude oil briefly surpassing US$100 per barrel. Market concerns over the inflation outlook have sharply escalated, casting doubt on the instructive value of the CPI data. "This report is currently irrelevant," asserted Shahab Jalinoos, head of FX Research at UBS’s G10 team. "The price moves and rate shifts we've seen recently reflect expectations about the future. What are the potential spillover effects if global energy prices remain elevated? And how will that transmit into core inflation? Those are the questions the market is genuinely considering." This view finds an echo in the analysis of Carl Weinberg, chief economist at High Frequency Economics, who noted in a recent report, "The February CPI report is old news. The true determinant of the inflation path will be the movement of oil prices in the coming weeks. If Middle East conflict keeps oil prices above US$100 a barrel, the March and April inflation reports will look very different." Meanwhile, Moody's Analytics economist Matt Colyar cautioned that while the pass-through of energy costs into core inflation typically occurs with a lag, the effect is significant. "If firms face persistent energy cost pressure, ultimately, they will pass that on to consumers through higher prices for goods and services," he said. "At that point, transportation services, manufactured goods, and even healthcare costs within the core CPI could all be affected."

In the 1D timeframe, GBPUSD found some stability after breaking below the Bollinger Lower Band and the EMA200. While the short-term downtrend is likely not over, a corrective move upward is anticipated. Resistance is observed near the EMA50 and the Bollinger Middle Band, at approximately 1.348 and 1.35 respectively. The Bollinger Bands are widening to the downside, and moving averages are diverging lower, indicating a bearish trend is in place. The MACD is poised for a potential golden cross; if formed, a rebound is likely. Otherwise, a renewed break below 1.33 is expected. The RSI reading of 40 suggests prevailing selling pressure among market participants. In the 4H timeframe, the Bollinger Bands are contracting and moving averages are flattening, with price oscillating near the middle band. The short-term rebound appears incomplete, with a high probability of extending towards the upper band. The RSI at 46 reflects continued market pessimism. Overall, GBPUSD is expected to rise initially before resuming its decline. Consequently, the trading strategy favors entering long positions first, followed by short positions.

Trading Direction: Sell

Entry Price: 1.335

Target Price: 1.37

Stop Loss: 1.32

Support: 1.32, 1.3, 1.28

Resistance: 1.35, 1.38, 1.41