Pound Sterling to Dollar Forecast: Relief Rally After Iran Tensions Ease

Modified: Tuesday, 24 March 2026 07:46 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: Relief Rally After Iran Tensions Ease

The Pound to Dollar exchange rate (GBP/USD) rebounded toward 1.34 after sliding to three-month lows near 1.3260, as a temporary easing in geopolitical tensions helped stabilise risk sentiment.

However, with energy markets still volatile and central bank expectations shifting rapidly, analysts warn that Sterling remains vulnerable to renewed downside if oil prices surge again or risk appetite deteriorates.

GBP/USD Forecasts: Rebound from 3-Month Lows

The Pound to Dollar (GBP/USD) exchange rate dipped sharply to around 1.3260 and close to 3-month lows on Monday amid increased fears over the Middle East and threat of US strikes on Iran’s energy infrastructure.

A slide below 1.3220 would risk further losses towards 1.30. Danske Bank has a 3-month GBP/USD forecast of 1.29 amid dollar gains.

There was, however, a rebound in risk appetite after President Trump stated that any strikes on Iranian energy infrastructure would be delayed for five days after holding talks with the Iranian side.

Equity markets rallied strongly and the dollar also lost ground with GBP/USD gains to near 1.34, but volatility will inevitably remain elevated.

According to UoB, a move above 1.34 is needed to alleviate underlying pressure.

The 10-year UK bond yield increased to fresh 18-year highs above 5.05% before a slide to around 4.80%.
Danske Bank has explained the underlying market dynamics; “The energy shock has triggered textbook negative supply-side dynamics, including higher inflation expectations, weaker growth expectations, and lower equities.”

It added; “In this environment, the USD has emerged as a key beneficiary, supported by flight-to-safety flows and a positive terms-of-trade shock stemming from its role as a net-energy exporter.”

There have been further dramatic shifts in interest rate expectations with market pricing in four Bank of England rate hikes this year early on Monday before another dip to two hikes after Trump’s post.

MUFG is not convinced yields will be a key drive of currencies; “We remain unconvinced that yield spreads will be the main driver of FX performance if the energy price shock continues to intensify, and still expect the US dollar strengthen as economies outside of the US in Asia and Europe will be hit harder as stagflation risks continue to build.”

The UK economy will certainly be vulnerable if yields and energy prices remain at very elevated levels. IG commented; “Each day that the war goes does more damage to the global economy and drives inflation higher, with recession chances rising by the hour.”

There is also the risk that markets will start to price in Federal Reserve rate hikes on inflation concerns.

According to Joseph Capurso, head of international economics at the Commonwealth Bank of Australia; "If markets price a U.S. tightening cycle, the USD will lift strongly against all currencies in our view."

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TAGS: Pound Dollar Forecasts