GBP/USD edges lower to near 1.2690 on risk aversion, Houthi attacks US ships

• GBP/USD loses ground on risk aversion as escalation of the Middle East conflict is possible.
• The Pound Sterling faces challenges before the release of UK labor data on Tuesday.
• Governor Bailey’s testimony has been canceled; traders will look for his remarks in Davos.
• Houthis are likely to broaden their targets in the Red Sea region including US vessels.

GBP/USD moves lower to near 1.2690 during the Asian session on Tuesday. The Pound Sterling (GBP) loses ground against the US Dollar (USD) on risk aversion, which could be attributed to the concerns regarding geopolitical risks, dominating the sentiment of market participants. Furthermore, traders await the labor market data from the United Kingdom to be released on Tuesday.

UK Claimant Count Change came in at 16K in November, while the ILO Unemployment Rate (3M) is forecasted to hold steady at 4.2%. October’s Employment Change printed 50K figures. Additionally, Tuesday’s testimony of the Governor Andrew Bailey of the Bank of England (BoE) has been canceled which was scheduled before the Lords’ Economic Affairs Committee in London. Traders would like to observe if the BoE’s Governor speaks at the World Economic Forum in Davos, Switzerland.

On Monday, an official from Yemen’s Houthi movement declared their intention to broaden their targets in the Red Sea region to include US ships. This statement comes in response to continued attacks, as the Iran-allied group vows to persist despite recent US and British strikes on its sites in Yemen. A United States-owned and operated container ship succumbed to an anti-ship ballistic missile assault from regions under Houthi control in Yemen. This event has shifted the previously optimistic sentiment to risk aversion, thereby providing support to the US Dollar (USD).

Atlanta Federal Reserve (Fed) President Raphael Bostic believes that interest rates should remain unchanged until at least the summer to prevent a resurgence in prices. Bostic emphasized the risk of inflation experiencing fluctuations if policymakers decide to ease measures prematurely. He cautioned that the deceleration toward the central bank’s 2.0% target was expected to slow down in the coming months.