GBP/USD Forecast: US Dollar Strengthens after Fresh US Action in Iran

Modified: Tuesday, 26 May 2026 22:06 BST - Written by David Woodsmith

STORY LINK GBP/USD Forecast: US Dollar Strengthens after Fresh US Action in Iran

The Pound to US Dollar (GBP/USD) exchange rate edged lower on Tuesday as renewed instability in the Middle East encouraged investors to seek shelter in safer assets.

The GBP/USD exchange rate traded around $1.3480 at the time of writing, down roughly 0.2% from the start of the session as market caution intensified.

The US Dollar (USD) firmed on Tuesday after reports emerged of fresh US military action targeting sites in southern Iran, adding renewed strain to already fragile ceasefire negotiations between Washington and Tehran.

The 'Greenback' attracted safe-haven demand after American forces reportedly struck missile facilities and suspected mine-laying operations near the Strait of Hormuz. US officials described the attacks as defensive measures intended to safeguard shipping routes and allied naval operations in the region.

Markets were also concerned that the strikes could derail hopes for a broader diplomatic breakthrough. Although US President Donald Trump claimed earlier in the week that a peace agreement was ‘largely negotiated’, investors remain sceptical about the prospects for lasting stability.

The Pound (GBP) struggled to attract strong demand amid the deterioration in market sentiment, although falling UK borrowing costs helped to cushion Sterling’s downside.

Sterling remained under pressure as investors assessed the potential economic consequences of renewed Middle East uncertainty, particularly the risks posed by elevated energy prices to the UK economy.

At the same time, Sterling found some support as UK gilt yields continued to retreat from the multi-decade highs struck earlier in the month, with borrowing costs easing to their lowest levels since mid-April.

Near-Term GBP/USD Forecast: Middle East Headlines to Dominate Trade

The Pound to US Dollar exchange rate is likely to remain highly reactive to geopolitical developments through the remainder of the week.

GBP/USD may remain under pressure if fears surrounding the US-Iran conflict continue to intensify, with investors likely to favour the safe-haven ‘Greenback’ in periods of heightened uncertainty.

However, the US Dollar’s upside potential may be tempered later in the week ahead of the release of the Federal Reserve’s preferred inflation gauge, the core PCE price index.

Meanwhile, in the absence of major UK economic releases, Sterling is likely to remain driven primarily by broader market sentiment and developments in global bond markets.

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TAGS: Pound Dollar Forecasts