Pound Sterling to Dollar Forecast: GBP Gains as Oil Prices Fall, Stocks Rally

Modified: Thursday, 7 May 2026 11:01 BST - Written by Ben Hughes

STORY LINK Pound Sterling to Dollar Forecast: GBP Gains as Oil Prices Fall, Stocks Rally

The Pound to Dollar exchange rate (GBP/USD) climbed above 1.3600, touching fresh multi-week highs after renewed optimism surrounding US-Iran negotiations triggered a fresh wave of dollar selling.

Improving risk appetite, falling oil prices and strong gains in global equities helped support Sterling, although traders remain cautious ahead of Thursday’s UK local elections and the risk of renewed geopolitical volatility.

GBP/USD Forecasts: Above 1.36 Ahead of UK Elections

The Pound to Dollar (GBP/USD) exchange rate surged in European trading on Wednesday with a surge to highs just above 1.3640 before settling around 1.3610.

According to Scotiabank; “The recovery is once again shifting our attention to the potential for a full retracement of the pullback and a push to the Jan highs in the mid/upper-1.38s. We look to a near-term range bound between 1.3600 and 1.3700.”

The latest media reports increased optimism that the US and Iran might be able to secure a peace deal and re-open the Strait of Hormuz.

In response, there was a slide in oil prices and strong gains in equities. These conditions helped underpin the Pound and also triggered a fresh round of losses for the dollar.

ING commented; “Investors have jumped on the news of 'great progress' in US-Iran negotiations, buying risk assets and selling the dollar. This is a far cry from the view that the oil market was close to a 'tipping point' which could trigger a non-linear spike in crude. It is too early to sound the all-clear in this crisis, but the USD can explore the downside.”

MUFG noted that there has been a strong correlation between the dollar and VIX index with the US currency losing ground when confidence increases.

The bank added; “Ultimately whether the drop in crude oil prices can hold and progress can be made in resolving the conflict in the Middle East will determine whether the dollar selling will extend further over the short-term although other macro factors are certainly helping.”

US ADP data recorded a 109,000 increase in private payrolls for April after a revised 61,000 the previous month, but slightly below consensus forecasts of 120,000.

ADP chief economist Dr. Nela Richardson commented; "Small and large employers are hiring, but we're seeing softness in the middle."

The Pound remained resilient ahead of Thursday’s English local council elections and devolved parliamentary elections in Wales and Scotland.

MUFG commented; “This could mark Labour’s worst‑ever local election performance in vote‑share terms. Such disappointing results, if confirmed, would heap further pressure on Prime Minister Starmer, whose net approval rating remains deeply negative at around ‑40 to ‑45, making him one of the least popular UK prime ministers at this stage of the political cycle.

A key factor is whether bad results and any potential leadership challenge have been priced into the Pound.

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TAGS: Pound Dollar Forecasts