– Written by
David Woodsmith
STORY LINK Pound Sterling to Dollar Forecast: GBP Held Below 1.35 by Iran War
The Pound to Dollar exchange rate (GBP/USD) struggled to regain the 1.3500 level, holding near 1.3430 as currency markets remained dominated by developments surrounding the Iran conflict and volatile energy prices.
Despite bouts of Sterling resilience, uncertainty over oil supply routes through the Strait of Hormuz and the inflationary impact of higher energy costs continue to underpin the US dollar and limit upside for GBP/USD.
GBP/USD Forecasts: Held Below 1.3500
The Pound to Dollar (GBP/USD) exchange rate has not been able to test 1.3500 and dipped to test support below 1.3400 around Wednesday’s US open. There was a rally to 1.3430 after President Trump reiterated that the Iran war will end soon and the IEA agreed to release oil reserves.
UoB commented; “The current price movements are likely part of a range-trading phase. Today, we expect GBP to trade between 1.3380 and 1.3465.”
The Pound was still broadly resilient in global markets despite a fresh retreat in equity markets and unease surrounding the UK economic outlook.
Trends in risk appetite and energy prices have tended to dominate market moves. There have been renewed fears over the ability of ships to pass through the Straits of Hormuz, especially with a focus on the potential for Iranian mining of the waterway.
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Scotiabank commented; “The distribution of FX returns is offering no clear signal in terms of the broader market’s tone and focus remains centered on geopolitical tensions and the Strait of Hormuz.”
It added; “the overall security situation appears incredibly uncertain following Tuesday’s reports and subsequent denials of escorted transit through the strait.”
The IEA stated that members have agreed to release 400mn barrels of oil.
According to ING; “This remains a headline-to-headline trading environment with all focus on assessing the length of the Iran conflict.”
Danske Bank expects net dollar gains in global markets; “we think that USD exposure offers an attractive hedge against prolonged energy supply disruption.”
The US inflation data had little impact with the headline year-on-year inflation rate holding at 2.5%.
Core prices increased 0.2% on the month with the annual rate at 2.4% and all key metrics were in line with consensus forecasts.
MUFG commented; “There has been a constant focus on trying to gauge the scale of the impact on inflation from the conflict as the inflation shock will determine the potential monetary policy response and the impact on economic growth.”
The next inflation reports will give stronger evidence on the potential impact on inflation pressures. Markets do not expect the Fed to cut interest rates this month.
The implications for the UK economy will also be a key element for the Pound, especially if there is extended conflict in the Middle East and a sustained increase in energy prices.
ING commented; “The UK is very exposed in terms of energy costs. People are going to be very concerned that we will see a material economic slowdown.”
Deutsche Bank’s chief UK economist Sanjay Raja notes that there are a range of possibilities for the government to ease upward pressure on costs and inflation.
He added; “The key lies in balancing immediate household relief with broader fiscal responsibility amidst ongoing economic uncertainty.”
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TAGS: Pound Dollar Forecasts
