Pound-to-Dollar Forecast: Peace Deal Hopes Push GBP/USD to 10-Day Best

– Written by


David Woodsmith

STORY LINK Pound-to-Dollar Forecast: Peace Deal Hopes Push GBP/USD to 10-Day Best

The Pound to Dollar exchange rate (GBP/USD) climbed to 10-day highs above 1.3460 after reports that the US and Iran had agreed a peace deal boosted risk appetite and reduced demand for the safe-haven US Dollar.

Lower oil prices and improving market sentiment helped Sterling advance, although investors remain cautious ahead of a crucial week of central bank decisions and key UK political developments.

GBP/USD Forecasts: Hits 10-Day Highs

The US and Iran agreement of a peace deal has underpinned risk appetite and curbed potential dollar support with the Pound to Dollar (GBP/USD) exchange rate advancing to 10-day highs at 1.3460 before settling around 1.3430.

As well as the Middle East situation, there is a key Federal Reserve meeting while the Bank of England (BoE) policy meeting and pivotal Makerfield by-election are due on “Super Thursday”.

There remains tough resistance in the 1.3500 area and, according to UoB; “while the increase in momentum suggests GBP could break above 1.3465, based on the prevailing momentum, it is too early to tell if GBP can break above 1.3490.”

On a longer-term perspective, ING considers that GBP/USD will retreat to 1.31 on a 3-month view before recovering to 1.35 into the year-end period.

Overnight, the US and Iran agreed a peace deal with a potential signing on Friday. Oil prices have moved lower while there has been a boost to risk appetite with equities posting net gains

ING is doubtful that risk appetite can strengthen sharply; “Financial markets have had opportunities to react to this kind of deal on several occasions already, and the MSCI World Index is already 5% higher than before the war. This suggests risk assets might not need to travel too far on today’s welcome news.”

As far as the Federal Reserve is concerned, markets expect rates to be held at 3.75%, but there is an important element of uncertainty over the statement and potential guidance. There is also the risk of a split vote.

ING commented; “The market clearly expects a less dovish set of communications (with an easing bias and expected 2026 rate cut removed), but we suspect he will have to talk tough on inflation to avoid upsetting the long end of the bond market.”

MUFG, however, does not see major dollar support; “The US rate market has already moved to scale back Fed rate hike expectations, but there is room for US yields and the US dollar to fall further if Kevin Warsh does not provide a hawkish policy surprise this week.”

Traders also expect the BoE to hold rates at 3.75% with a split vote as the majority back waiting to assess inflation trends while a minority are expected to back a rate hike.

MUFG senior economist Henry Cook expressed concern over a waiting game; “We do ​think there is a risk that they end up dithering a bit too much. Playing for time is potentially not the best strategy here.”

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TAGS: Pound Dollar Forecasts