GBP Sinks as Middle East Tensions Rekindle Dollar Demand

The Pound to US Dollar (GBP/USD) exchange rate traded lower on Tuesday as fresh uncertainty surrounding the Middle East supported demand for the US Dollar. The USD edged higher as renewed concerns surrounding tensions in the Gulf triggered modest demand for safe-haven assets.

Oil prices climbed back towards $90 a barrel amid another setback for efforts to reopen the Strait of Hormuz, after US President Donald Trump set out fresh demands for any agreement with Iran. Trump said any deal should also include compensation from Iran 'for the damage they've done over a 50-year period', suggesting an agreement may be further away than markets had hoped.

The Pound (GBP) held relatively steady as fresh data showed UK consumer confidence reached its strongest level in nearly two years. According to a Barclays survey, domestic economic concerns eased in July as workers became more confident about job security, and this improving outlook encouraged households to increase spending.

Looking ahead, Wednesday's US consumer price index is expected to provide the next major catalyst for the Pound to US Dollar exchange rate. Markets expect inflation to have moderated in July, which could further weaken expectations for a Federal Reserve interest rate hike in September and place renewed pressure on the US Dollar, potentially helping GBP/USD consolidate above $1.35.