Pound Sterling to Dollar Forecast: GBP Retreats as Iran Tensions Boost Oil, USD

– Written by


Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Retreats as Iran Tensions Boost Oil, USD

The Pound to Dollar exchange rate (GBP/USD) briefly surged to 6-week highs above 1.3650 before retreating back toward 1.3550, as renewed tensions in the Middle East triggered a rebound in oil prices and supported the dollar.

Volatile trading conditions persist, with geopolitical headlines and upcoming US labour market data likely to dictate whether Sterling can regain upward momentum or faces further pressure.

GBP/USD Forecasts: Slide from 6-Week Highs

The Pound to Dollar (GBP/USD) exchange rate surged to 6-week highs just above 1.3650 on Friday with significant net support from month-end position adjustment which saw notable dollar selling across the board.

GBP/USD was unable to hold the gains and dipped to lows near 1.3520 amid fresh unease surrounding the Iran conflict. Political developments will also be monitored closely ahead of important local elections on Thursday.

Overnight, President Trump stated that the US would launch an operation to allow trapped merchant ships to pass through the Strait of Hormuz and exit the gulf.

During the European session, however, there were Iranian claims that it had hit a US destroyer with missiles. In response, there was a fresh jump in oil prices and dip in risk appetite. GBP/USD recovered to 1.3550 after the US denied the Iran claims.

SEB’s Sundström commented; “The situation in the Middle East is definitely the dominant factor now.”

MUFG pointed to underlying pressures; “At the time of writing there appears to be little impetus toward the blockade ending or appetite for the resumption of peace negotiations. That points to a rising probability of further energy price rises and a re-escalation of military conflict.

It added; “We therefore maintain our forecast of near-term US dollar strength on a further rise in energy prices over the coming months before de-escalation is achieved and energy prices gradually decline in the second half of the year.”

There will also be underlying pressures within the US economy with increased concerns surrounding weaker growth and higher inflation..

Danske Bank commented; “Energy markets remain heavily impacted, with US gas prices rising to an average of USD 4.45 per gallon on Sunday, a nearly 50% increase since the conflict began, according to AAA data.”

US jobs data will be watched closely this week with the monthly jobs report on Friday. Consensus forecasts are for the unemployment rate to remain at 4.3% with an increase in non-farm payrolls of around 60,000 from 178,000 previously.

Weaker data would increase pressure on incoming Fed Chair Warsh. Rabobank commented; “Warsh may try to argue that they should look through the rise in inflation, because it should be temporary and the Fed cannot do much about a negative supply shock.

It added; “The FOMC may be susceptible to this argument.”

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TAGS: Pound Dollar Forecasts