– Written by


Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Struggles near $1.34

The Pound US Dollar (GBP/USD) exchange rate struggled to gain momentum on Thursday as the ongoing crisis in the Middle East continued to keep markets on edge.

At the time of writing, GBP/USD was trading around $1.3369. While the pair attempted to recoup some of its earlier losses, upside movement remained limited as a cautious market mood continued to underpin demand for the safe-haven ‘Greenback’.

The US Dollar remained broadly supported, although its momentum softened slightly as markets attempted a modest recovery in risk sentiment.

The ‘Greenback’ had strengthened overnight on Wednesday as escalating tensions in the Middle East fuelled demand for safe-haven assets. This came after the US denied reports that Iranian operatives had reached out to the CIA to discuss terms for a ceasefire.

Hawkish remarks from US Secretary of War Pete Hegseth added to market anxiety, with reports he urged Israel’s Defence Minister Israel Katz to ‘continue to the end’. Meanwhile, Iran struck a US oil tanker in the Persian Gulf while continuing drone and missile attacks against US allies in the region.

Although markets staged a brief rebound on Thursday morning, the overall mood remained cautious. As a result, the US Dollar continued to find some support from lingering risk aversion, even as its earlier gains eased slightly.

The increasingly risk-sensitive Pound struggled to gain strong traction, although it managed to stabilise somewhat as markets attempted a modest recovery in sentiment.

The absence of fresh UK economic data left Sterling without a clear domestic catalyst, while the mixed implications of rising global energy prices kept upside potential somewhat limited.

Surging energy costs may encourage the Bank of England to adopt a more cautious approach to cutting interest rates, given the potential for renewed inflationary pressure. Expectations that borrowing costs may remain higher for longer can typically lend support to the Pound.

However, escalating energy prices could also place additional strain on the UK’s already fragile economy. Higher household bills risk intensifying the cost-of-living crisis, while the prospect of increased support measures may also pose a fiscal challenge for the British government.

Short-Term GBP/USD Forecast: US Jobs Data in Focus

The US Dollar could face fresh volatility as markets turn their attention to the latest US non-farm payrolls report.

Economists forecast that job creation slowed notably in February, with payrolls expected to rise by around 59,000, down sharply from 130,000 in the previous month. A slowdown of this magnitude may raise concerns about the resilience of the US labour market and could strengthen expectations that the Federal Reserve may begin cutting interest rates sooner than previously anticipated.

Alongside the jobs data, the latest US retail sales figures are also due for release. January’s reading is expected to show a 0.3% contraction in sales, which could further dampen confidence in the US economic outlook and add to downside pressure on the US Dollar.

However, any losses for the ‘Greenback’ may prove limited if risk aversion remains elevated. Continued tensions in the Middle East could still drive safe-haven demand for the US Dollar.

With little in the way of notable UK economic data scheduled, movement in the GBP/USD exchange rate is likely to remain primarily driven by US data and the broader market mood.

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TAGS: Pound Dollar Forecasts