Pound To Dollar Weekly Forecast: GBP Hits Three-Week High Despite Middle East Tensions

The Pound to Dollar (GBP/USD) exchange rate climbed over the past week, briefly reaching a three-week high as Sterling remained well supported despite renewed geopolitical tensions in the Middle East.

At the time of writing, GBP/USD was trading at $1.3417, up around 0.5% on the week.

DAILY RECAP:

The US Dollar (USD) traded unevenly last week as renewed tensions in the Middle East created periods of safe-haven demand, although the currency struggled to hold onto its gains for long.

The ‘Greenback’ opened the week on a mixed footing, briefly finding support as US markets reopened after the Independence Day holiday before retreating as improving risk appetite reduced demand for the safe-haven currency.

Fresh attacks on commercial shipping in the Strait of Hormuz then boosted USD on Tuesday, as fears of a wider regional conflict prompted investors to seek safer assets.

However, the US Dollar lost momentum in the second half of the week. Despite escalating US-Iran tensions, resilient market sentiment limited demand for the safe-haven currency, while the Federal Reserve’s latest meeting minutes offered little fresh policy guidance.

USD briefly fell to a three-week low against the Pound on Friday, although it recovered some ground before the close as trading remained volatile.

Meanwhile, the Pound (GBP) continued to strengthen over the past week as traders further reduced the political risk premium attached to Sterling following Prime Minister Keir Starmer’s resignation three weeks ago.

Sterling’s strong performance highlights the extent to which prolonged political uncertainty had been holding back the UK currency. With Andy Burnham now widely expected to replace Starmer through a smooth transition of power, confidence in the UK’s political outlook has continued to improve, providing additional support for the Pound.

The Pound also benefited from rising expectations that the Bank of England (BoE) will increase interest rates. Escalating tensions in the Middle East pushed oil prices higher, leading markets to price in a greater chance of another BoE rate hike.

Near-Term GBP/USD Forecast: UK GDP and US CPI in Focus

Looking ahead, the spotlight for Pound investors this week will be Thursday’s UK GDP release. Economists expect the British economy to have returned to growth in May, with a modest 0.1% expansion forecast, which may provide Sterling with some support.

That said, the GDP figures are only likely to trigger a more pronounced reaction if they come in notably above or below expectations, potentially prompting sharp moves in the Pound.

Politics may also remain on investors’ radar. Andy Burnham could be officially confirmed as Labour leader on Friday if no other valid candidates enter the race. A smooth and orderly handover is likely to be viewed positively by markets, which could offer additional support to Sterling.

Meanwhile, the focus for USD investors will be the latest US consumer price index on Tuesday. If inflation cooled in June, as expected, the ‘Greenback’ could drop.

That said, fresh tensions in the Middle East could sour the market mood and lift USD.