British Pound holds losses amid geopolitical tensions, Fed tightening hopes

The British Pound (GBP) struggled to gain momentum on Monday but remained near two-week low levels against the US Dollar (USD). Growing concerns over heightened US-Iran tensions and the prospect of a potential Federal Reserve (Fed) rate hike in September are dampening USD weakness at the beginning of the week. Investor risk appetite remains cautious, following reports of US missile strikes on Iran and Tehran's retaliation in Jordan.

The US Dollar finished last week on a strong note, buoyed by comments from Fed Chair Kevin Warsh at the Jackson Hole Summit, indicating possible rate hikes if inflation persists. FX strategists at OCBC noted that "debasement concerns faded following Warsh's speech," leading to a stronger USD, falling gold prices, and a flattening US yield curve.

Analysts suggest that "USD dips may also prove more restrained for now," with USD bears likely needing softer US data to regain confidence. The upcoming US labor and inflation data in September will be crucial for assessing the Fed's policy direction. On a global scale, the focus is on the G20 finance ministers meeting in North Carolina, where US Treasury Secretary Scott Bessent aims to persuade major economies, particularly China, to distance themselves from Iran and address concerns about the US debt and bond yields.