Pound Sterling Forecast: Rising UK Energy Costs Keep GBP on the Defensive

Modified: Wednesday, 27 May 2026 20:21 BST - Written by David Woodsmith

STORY LINK Pound Sterling Forecast: Rising UK Energy Costs Keep GBP on the Defensive

The Pound US Dollar (GBP/USD) exchange rate traded without clear direction on Wednesday as investors reacted to fresh optimism surrounding negotiations between the US and Iran.

At the time of writing, GBP/USD was trading at around $1.3442, little changed from the start of the session.

The US Dollar (USD) struggled to gain momentum on Wednesday as improving market sentiment reduced demand for safer assets.

Investor confidence improved after reports indicated that talks between Washington and Tehran continue to move in a constructive direction.

Markets were particularly encouraged by claims from Iranian state media that a preliminary memorandum with the US could lead to the Strait of Hormuz reopening to commercial shipping within weeks.

Despite the more upbeat mood, downside pressure on the ‘Greenback’ remained somewhat limited as traders remained cautious over whether a formal agreement would ultimately materialise.

The Pound (GBP) remained on the defensive through Wednesday’s session after confirmation that the UK energy price cap is set to increase again from July.

The prospect of another rise in household bills renewed concerns over the strain on consumer spending and the broader outlook for the UK economy.

Investors worried that higher energy costs could further erode disposable incomes at a time when signs of slowing economic momentum are already beginning to emerge.

This uncertainty offset support that Sterling may otherwise have received from an ongoing slide in UK bond yields.

Near-Term GBP/USD Forecast: US Inflation Data in Focus

Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate may come under pressure later in the week with the release of the latest US core PCE price index.

As the Federal Reserve’s preferred measure of inflation, any indication that price pressures strengthened in April could reinforce expectations for tighter US monetary policy and lend support to the US Dollar.

Meanwhile, Sterling sentiment may remain fragile if comments from Bank of England (BoE) policymaker Sarah Breeden further cool speculation surrounding a potential interest rate increase in June.

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TAGS: Pound Dollar Forecasts