GBP/USD Forecast: Dollar Slides on Hopes for US-Iran Peace Deal

Modified: Thursday, 7 May 2026 21:51 BST - Written by Tim Boyer

STORY LINK GBP/USD Forecast: Dollar Slides on Hopes for US-Iran Peace Deal

The Pound US Dollar (GBP/USD) exchange rate edged higher on Thursday, as improving risk appetite helped lift the pairing.

At the time of writing, GBP/USD was trading at $1.3622, up roughly 0.2% on the day.

The US Dollar (USD) weakened on Thursday as a firmer risk tone reduced demand for the safe-haven ‘Greenback’.

Markets were buoyed by hopes of a possible US-Iran peace agreement, after US President Donald Trump suggested a deal to end the conflict was ‘very possible’ following negotiations over the previous 24 hours.

The prospect of easing tensions in the Middle East lifted global equities and encouraged investors away from safer assets.

This left the US Dollar under pressure through Thursday’s trade, with risk-sensitive currencies advancing as the ‘Greenback’ faced broad-based selling.

The Pound (GBP) strengthened against the US Dollar on Thursday, as its increasingly risk-sensitive nature left it well placed to benefit from the brighter market mood.

However, Sterling’s gains were limited by caution ahead of the UK local election results.

Labour is widely expected to suffer setbacks, with investors watching closely to see the scale of the losses. A sharper-than-forecast defeat could intensify pressure on Prime Minister Keir Starmer, especially after some Labour MPs have already called for him to resign.

As a result, the Pound’s upside was capped, with improved risk appetite partly offset by fears that the elections could trigger renewed political uncertainty in the UK.

Near-Term GBP/USD Forecast: Pound to Face Election Fallout as US Dollar Awaits NFP Data?

Looking ahead, the UK local election results are likely to take centre stage for Pound investors on Friday.

Sterling may find support if Labour’s losses prove relatively contained, as this could calm concerns over Prime Minister Keir Starmer’s leadership.

However, a heavier defeat could revive speculation over a possible leadership challenge. If the results heighten fears of political instability in the UK, rising bond yields may add further pressure to the Pound.

At the same time, USD investors will be focused on the latest non-farm payrolls report. Economists expect US jobs growth to have slowed in April, which could strengthen bets on a Federal Reserve interest rate cut this year and drag on the ‘Greenback’.

Risk sentiment may also remain a key driver for the US Dollar. Should the market mood stay upbeat, the safe-haven ‘Greenback’ could struggle to regain ground.

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TAGS: Pound Dollar Forecasts