The Pound to Dollar (GBP/USD) exchange rate drifted lower on Wednesday as renewed tensions in the Middle East boosted demand for the safe-haven US Dollar.

At the time of writing, GBP/USD was trading around $1.3445, down almost 0.2% on the day.

DAILY RECAP:

The US Dollar (USD) strengthened through Wednesday’s session as investors sought safety amid renewed uncertainty surrounding the conflict between the US and Iran.

Fresh military exchanges between the two countries raised concerns that diplomatic efforts could stall, increasing the risk of a prolonged conflict and ongoing disruption to global energy markets.

Market participants remained particularly focused on developments around the Strait of Hormuz, with fears that any escalation could further disrupt shipping routes and energy exports.

The cautious mood helped support traditional safe-haven assets, with the US Dollar benefiting from defensive flows.

Additional support came from expectations for a solid US ISM services PMI reading, with investors anticipating further evidence that the American economy remains resilient despite heightened geopolitical uncertainty.

Meanwhile, the Pound (GBP) performed better against many of its peers after revised UK business survey data painted a slightly less negative picture of economic conditions.

The final UK services PMI for May was revised up from 47.9 to 49.3.

Although the reading still signalled contraction and marked the first downturn in activity since April 2025, the revision suggested the slowdown was less severe than initially feared.

Businesses continued to cite elevated energy costs, supply-chain disruption and uncertainty linked to events in the Middle East as key factors weighing on activity and confidence.

Despite this modest support, Sterling struggled to compete with the safe-haven appeal of the US Dollar.

GBP/USD Forecast: Bailey Speech and Payrolls Caution in Focus

Looking ahead, developments in the Middle East are likely to remain a major driver of GBP/USD price action.

Any further deterioration in the geopolitical backdrop may continue to support the US Dollar as investors seek defensive assets.

However, market moves could become more restrained ahead of Friday’s closely watched US non-farm payrolls report.

For Sterling, attention will turn to comments from Bank of England Governor Andrew Bailey.

Recent remarks from Bailey have highlighted a cautious approach towards interest rates despite elevated inflation, and any repetition of that stance could weigh on the Pound.

Conversely, if Bailey expresses greater concern about persistent inflationary pressures, Sterling may find some support heading into the end of the week.