GBP/USD falls near 1.2690 due to risk aversion, Houthi attacks US ships.

• GBP/USD loses ground on risk aversion due to potential escalation of Middle East conflict.
• Pound sterling faces challenges ahead of UK labor data on Tuesday.
• Governor Bailey’s testimony was canceled. Traders will look for his remarks in Davos.
• The Houthis are likely to expand their targets to the Red Sea region, including American ships.

GBP/USD fell near 1.2690 during Tuesday’s Asian session. The pound (GBP) is falling against the US dollar (USD) due to risk aversion, which is dominating the sentiment of market participants due to concerns about geopolitical risks. Moreover, traders are awaiting UK labor market data to be released on Tuesday.

The change in UK claimant numbers was 16K in November, with the ILO unemployment rate (3M) expected to remain stable at 4.2%. October’s Employment Change printed 50,000 figures. Additionally, Bank of England Governor Andrew Bailey’s testimony scheduled for Tuesday at the Lords Economic Committee in London was cancelled. Traders will want to watch whether the BoE governor speaks at the World Economic Forum in Davos, Switzerland.

On Monday, Yemeni Houthi rebel officials signaled their intention to expand their targets in the Red Sea region to include American ships. The statement comes as the Iran-allied group vowed to continue carrying out attacks despite recent US and British attacks on bases in Yemen. A US-owned and operated container ship has succumbed to an anti-ship ballistic missile attack in Houthi rebel-controlled territory in Yemen. This event provided support to the US dollar (USD) by converting previously optimistic sentiments into risk aversion.

Raphael Bostic, president of the Atlanta Federal Reserve, said interest rates should be kept on hold until at least the summer to prevent a rebound in prices. Bostic emphasized that there is a risk of inflation swings if policymakers decide to ease measures prematurely. He warned that the slowdown towards the central bank’s 2.0% target is expected to slow in the coming months.