– Written by


Frank Davies

STORY LINK GBP/USD Forecast: US Dollar Softens as Oil Supply Fears Ease

The Pound to US Dollar (GBP/USD) exchange rate opened the week on firmer footing as markets responded to signs that the disruption to shipping in the Strait of Hormuz could soon be addressed.

At the time of writing, GBP/USD was trading close to $1.3269, up around 0.4% from Monday’s opening level.

The US Dollar slipped slightly as investor sentiment improved following reports that an international naval coalition may be assembled to protect commercial vessels travelling through the Strait of Hormuz.

According to the reports, the United States is leading discussions with allied nations about deploying naval forces to escort oil tankers and cargo ships through the key shipping route, which has been heavily affected by the ongoing conflict in the Middle East.

Recent attacks and threats to maritime traffic have sparked fears that energy exports from the Gulf could face prolonged disruption, contributing to volatility in global markets.

However, the prospect of coordinated naval patrols has helped calm some of those concerns, reducing demand for traditional safe-haven assets such as the US Dollar.

Although the Pound managed to gain ground against the US Dollar, it struggled to replicate this performance against several other major currencies due to lingering worries about the UK’s economic outlook.

These concerns intensified after the release of the latest UK GDP figures late last week. Data published by the Office for National Statistics showed the economy unexpectedly flatlined in January, despite expectations for modest growth of around 0.2%.

What particularly unsettled Sterling investors was the timing of the slowdown, which occurred before the recent surge in global energy prices. This has raised fears that the UK economy could face additional pressure in the months ahead as higher costs filter through.

Short-Term GBP/USD Forecast: Central Bank Signals in Focus

Alongside developments in the Middle East, attention will shift toward monetary policy signals as markets prepare for upcoming interest rate decisions from the Federal Reserve and the Bank of England.

While neither central bank is widely expected to alter interest rates at this week’s meetings, investors will be closely analysing their statements for clues about how policymakers are responding to the inflation risks created by rising energy prices.

If either the Federal Reserve or the Bank of England suggests that tighter policy may still be necessary to contain inflation, it could provide support for their respective currencies.

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– Written by


Frank Davies

STORY LINK British Pound to Dollar Forecast: BoE Policy Doubts Weigh on GBP

The Pound to Dollar exchange rate (GBP/USD) slipped to three-month lows below 1.3250 as weaker UK growth data and rising energy prices weighed on Sterling while safe-haven demand boosted the US dollar.

With markets reassessing Bank of England policy expectations and geopolitical tensions continuing to dominate sentiment, analysts warn that Sterling could remain vulnerable if energy prices stay elevated and risk appetite deteriorates further.

GBP/USD Forecasts: BoE panic?

Credit Agricole forecasts that the Pound to Dollar (GBP/USD) exchange rate will retreat to 1.30 by the end of 2026.

UBS, however, expects buying close to current levels with a year-end forecast of 1.40.

GBP/USD lost ground during the week amid defensive dollar demand, weaker risk appetite and weaker than expected GDP data. The pair dipped sharply to 3-month lows below 1.3250.

Middle East developments and energy prices are liable to remain dominant in the short term.
MUFG noted underlying risks; “The energy price shock has begun to spill over into broader financial markets, triggering a deepening sell‑off in global bond and equity markets and contributing to a stronger USD.”

It added; “Iran upping attacks on production facilities would be hugely impactful and we would likely see significant further increases in crude oil and natural gas prices. The dollar would advance further and equities would start to suffer more.”

According to UBS; “If the war goes on for longer, we continue to see support for the dollar. However, over the medium term, we expect the war to end and oil prices to fall back, and for weaker fundamentals to weigh on the USD.”

The Bank of England (BoE) and Federal Reserve will both announce their latest interest rate decisions in the week ahead.

There has been a big shift in expectations surrounding the BoE. Ahead of the Middle East conflict, markets were very confident that rates would be cut to 3.50%. These expectations have now disappeared amid the jump in energy costs with markets pricing in the risk of a rate hike by year-end.

Credit Agricole is sceptical over the new pricing; “In all, we think the BoE may not ‘validate’ the latest aggressive shifts of the UK market rates outlook and this could leave the GBP vulnerable.”
There are no expectations that the Fed will cut at this meeting. There are still underlying reservations surrounding the US currency.

Scotiabank warned over medium-term dollar risks; “The USD remains broadly supported by safe‑haven demand for now. However, the risk of conflict‑driven blowback on the dollar is becoming clear. The narrowing in interest‑rate differentials versus key peers that we have already seen unfold in the past few months may accelerate if central banks excluding the Fed respond to building price pressures.

It added; “In addition, a more accommodative Fed at a time of elevated inflation risks would erode real returns on USD assets, undermining the currency’s relative appeal.”

Domestically, UK GDP data was weaker than expected with no change for January compared with consensus forecasts of a 0.2% increase.

Weak growth and higher bond yields would pose notable risks to the fiscal outlook.

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TAGS: Pound Dollar Forecasts

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