The Pound to Dollar exchange rate (GBP/USD) has slipped back below 1.3500, after failing to hold gains near 1.36, as renewed Iran tensions triggered a fresh spike in oil prices and hit risk appetite.
With markets swinging between optimism and fear, GBP/USD is set for a highly volatile week, with geopolitical developments, UK data releases, and central bank signals all in focus.
GBP/USD Forecasts: Pound Dips as Fear Spikes Again
Hope and Fear have continued to trade blows in global markets. There was a strong boost to risk appetite on Friday following a statement from Iran that the Strait of Hormuz was open to all traffic.
In response, the Pound to Dollar (GBP/USD) exchange rate jumped to 2-month highs just below the 1.36 level as oil prices declined sharply.
GBP/USD, however, dipped to lows below 1.3500 on Monday as the Iran situation deteriorated again. In response, there was a fresh jump in crude oil prices and equity markets dipped again.
According to UoB; “The increase in downward momentum is not enough to indicate a continued decline. However, there is a chance for GBP to test 1.3450.”
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Iran developments and UK data releases will be crucial elements this week with UK political developments also watched closely with Prime Minister Starmer under renewed pressure due to the Mandelson affair.
According to Danske Bank; “The market is likely to stay volatile this week as US and Iran will try to negotiate a deal.”
ING added; “In terms of the immediate focus, the question is whether investors will receive further positive news on renewed peace talks in Pakistan, or whether both sides will talk tough and potentially act tougher ahead of tomorrow’s deadline on the two-week ceasefire.”
Danske Bank noted the importance of energy flows; “If oil does not start flowing through the strait soon, oil prices are likely to rise further and above USD100/bbl again, putting upward pressure on yields and downward pressure on EUR/USD.” This would be likely to hurt GBP/USD.
The evidence on US, global and UK economic trends will also be important this week.
There will be a greater focus on potential US interest rate trends with Fed Chair nominee Warsh due to testify in Congress.
ING commented; “He is expected to be dovish on rates, but hawkish on the size of the Fed’s balance sheet.” Calls for lower rates would tend to hamper the dollar.
As far as UK data is concerned, the latest labour-market data will be released on Tuesday with the inflation data on Wednesday. The headline rate is forecast to increase to 3.3% from 3.0% with the core rate holding at 3.2%.
The latest PMI business confidence data is due on Thursday with expectations that there will be a small decline from March figures. A dip into contraction territory would be likely to hurt the Pound.
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Copper price remains affected by the temporary negative pressures that comes from stochastic exit from the overbought level, which forced it to provide extra pressure on the initial support at $5.9700 as appears in the above image.
The continuation of the negative pressures might force it to activate the bearish corrective track, to expect targeting $5.8200 level, to begin forming new bullish waves, while surpassing $5.8200 level and holding below it might motivate more of the bearish attempts, which might extend towards $5.7100.
The expected trading range for today is between $5.8200 and $6.050
Trend forecast: Fluctuated within the bullish trend
The Pound US Dollar (GBP/USD) exchange rate opened the week on the back foot as tensions in the Middle East intensified once again.
At the time of writing, GBP/USD was trading at approximately $1.3497, down almost 0.2% from Monday’s opening levels.
The US dollar (USD) began the week on firm footing, with demand for the safe-haven currency lifted by renewed geopolitical uncertainty.
After signalling the Strait of Hormuz would remain open on Friday, Iran reversed course over the weekend, closing the vital shipping route as US naval forces continued their blockade.
An attempt by an Iranian-flagged vessel to break through the blockade on Monday led to its seizure, further escalating tensions between Washington and Tehran.
Iranian state media has since threatened retaliation and confirmed the country has ‘no plans to participate’ in further negotiations with the US.
This has raised doubts over the current ceasefire, which is set to expire on Wednesday.
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The pound (GBP) came under pressure as escalating tensions triggered another rise in UK government bond yields.
The increase in borrowing costs reignited concerns about the UK’s fiscal outlook, particularly regarding how the government might finance additional energy support for households later this year.
Further undermining Sterling was data showing UK consumer confidence has dropped to a 33-month low since the onset of the US-Iran conflict, amid worries over inflation and the jobs market.
Short-Term GBP/USD Forecast: UK Labour Data in Focus
The Pound to US dollar (GBP/USD) exchange rate may remain under pressure ahead of the release of the UK’s latest labour market figures.
In addition to unemployment holding at a five-year high, February’s data is expected to show slower wage growth and a decline in employment levels.
Fresh evidence of a cooling labour market could further dampen Bank of England rate hike expectations and weigh on Sterling in early trade.
Meanwhile, although the US dollar will likely continue to track geopolitical developments, the latest US retail sales figures may provide additional support if they indicate a pickup in consumer spending last month.
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The GBPJPY pair surrendered to stochastic negativity in Friday, forcing it to delay the bullish rally, forming bearish corrective waves, to test the initial support level at 214.19, to settle above it.
The stability above the current support will provide a chance for renewing the bullish attempts by its rally initially towards 215.10, and surpassing it might extend the trading towards 215.70, while the continuation of the negative pressures might force it to provide more corrective trading to reach the main support at 213.30.
The expected trading range for today is between 214.10 and 215.70
As things stand right now, I think you have to look at this as a market that you have to wait and see. The British pound, in general, has been stronger than many other currencies against the dollar, and that could very well continue to be the case.
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The Euro to Dollar exchange rate (EUR/USD) has pushed above 1.1800 to six-week highs, as the dollar weakened amid easing geopolitical tensions and renewed doubts over US policy credibility.
While markets have priced in optimism over a potential Iran resolution, analysts warn that near-term upside may be limited, even as the broader outlook remains tilted towards further EUR/USD gains.
EUR/USD Forecasts: Dollar vulnerability
ING is still backing year-end Euro-to Dollar (EUR/USD) gains to 1.20
Nordea is forecasting stronger EUR/USD gains to 1.25 at the end of this year.
EUR/USD secured net gains to a 6-week above 1.18 with the dollar index at the lowest level since early March. Markets overall took an optimistic stance on the Iran conflict with hopes that a ceasefire would be extended with progress towards a more decisive deal.
There is still a high degree of uncertainty over the Iran situation. Rabobank commented; “EU and GCC officials have predicted that a deal between the US and Iran may take close to 6 months as counterparties argue back and forth on the subject of enriching uranium and developing nuclear capabilities.”
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ING doubts the Euro can make further near-term headway; In the shorter run, we see risks mildly tilted on the downside for EUR/USD, and we target 1.170 for the end of the second quarter. Markets have already leaned aggressively into the de‑escalation trade.”
The dollar was also hampered by fresh reservations over Federal Reserve policy with President Trump again threatening to fire Chair Powell if there is a delay in appointing Warsh as his replacement and Powell stays as chair.
According to ING; “If anything, risks sit on the upside relative to our 1.20 year‑end target, as the ECB might end up delivering two hikes after all and political uncertainty building into the November midterms could trigger more US‑specific dollar weakness. And if Republicans lose both houses of Congress, limits on Trump’s ability to pursue new fiscal stimulus could reinforce structurally bearish views on the dollar.
Nordea is also bearish on the dollar; “Confidence in the US government has not improved in recent weeks – quite the opposite – which could weigh further on the dollar in the years ahead.”
It added; “Our broader narrative has been that dollar weakness over the coming years will, in part, be driven by a reallocation away from US assets and towards other investment opportunities.”
MUFG notes the importance of economic developments; “The only scope for a notable gain for the dollar would be if we saw a period of strong risk-off on global recession being priced that would result in a big decline in global equities of around 20%. That’s still a considerable risk and as time passes the impact of the supply disruption will become more evident.”
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The GBPJPY pair surrendered to stochastic negativity in Friday, forcing it to delay the bullish rally, forming bearish corrective waves, to test the initial support level at 214.19, to settle above it.
The stability above the current support will provide a chance for renewing the bullish attempts by its rally initially towards 215.10, and surpassing it might extend the trading towards 215.70, while the continuation of the negative pressures might force it to provide more corrective trading to reach the main support at 213.30.
The expected trading range for today is between 214.10 and 215.70
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