Pound to Dollar Forecast: Oil Shock Sends GBP to 10-Week Lows

Modified: Tuesday, 3 March 2026 12:31 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: Oil Shock Sends GBP to 10-Week Lows

The Pound to Dollar exchange rate (GBP/USD) slumped to 10-week lows near 1.3315 as a surge in oil prices following US and Israeli strikes on Iran triggered a sharp bout of risk aversion across global markets.

With Brent crude jumping and safe-haven flows boosting the dollar, Sterling came under heavy pressure as investors reassessed Federal Reserve rate-cut expectations amid renewed inflation risks tied to higher energy costs.

GBP/USD Forecasts: 10-Week Lows

The Pound to Dollar (GBP/USd) exchange rate posted sharp losses on Monday with a slide to 10-week lows around 1.3315 before a limited recovery to 1.3370.

UoB noted important support around 1.3320 with the risk of further significant downside if there is a break lower while holding this level would encourage dip buying.

The dollar drew significant net support as risk appetite deteriorated following the US and Israeli attacks on Iran while a jump in energy prices was also a key element.

Market fears were also heightened by Iranian retaliation against several Middle East countries. Iran also made attempts to block the Straits of Hormuz with concerns over disruptions to oil and LNG supplies.

Middle East developments overshadowed domestic developments, but there will be some impact given that the focus on Iran will lessen immediate political pressures on Prime Minister Starmer from within the Labour Party.

Danske Bank commented; “Markets reacted sharply to escalating tensions in the Middle East, with equities under pressure and oil surged over 6% since Friday, boosting USD amid improved terms of trade. Safe-haven assets rallied, with gold up 1.6%, while CHF outperformed.”

ING sees scope for further dollar gains; “Developments this weekend seem clearly dollar positive and we identify three channels at work here. The first is US energy independence and the energy dependence of Europe and Asia. It seems too early to expect de-escalation in the Middle East and the longer oil and natural gas prices stay higher, the bigger toll it takes on the external accounts of the fossil fuel importing currencies.”

Markets are now pricing in less than a 50% chance of a Fed rate cut by June.

Rabobank noted the importance of higher energy prices; “While yields are falling on risk-off sentiment this morning, all of the above is inflationary, just as it was when Russia invaded Ukraine.”

ING sees an impact on US monetary policy; “This oil shock comes at a time when the January FOMC made it clear that the central bank was losing patience with inflation. Inflation really needed to show signs of falling, the Fed said, otherwise stabilisation in the US jobs market would question whether the Fed needs to cut rates at all.”

MUFG also noted the potential shift in interest rate expectations; “Our forecast for a weaker US dollar was built on the assumption that the Fed would lower rates by another 50-75bps this year but that will be more difficult to justify if inflation remains higher for longer in the US.”

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TAGS: Pound Dollar Forecasts