GBP/USD Forecast: Pound Sterling Slips as Middle East Tensions Lift the US Dollar

Modified: Tuesday, 7 July 2026 20:01 BST - Written by James Fuller

STORY LINK GBP/USD Forecast: Pound Sterling Slips as Middle East Tensions Lift the US Dollar

The Pound US Dollar (GBP/USD) exchange rate weakened on Tuesday, slipping back after striking a near three-week high overnight, as a deterioration in risk appetite pressured the pairing.

At the time of writing, GBP/USD was trading at $1.3371, down from an overnight peak of $1.3398.

The US Dollar (USD) strengthened on Tuesday, recouping part of Monday evening’s losses, as renewed Middle East tensions pushed investors towards safer assets.

Market sentiment weakened after two commercial vessels in the Strait of Hormuz were reportedly hit by projectiles overnight, including a Qatari LNG tanker.

Washington has accused Iran of carrying out the strikes, with the US expected to respond by targeting Iranian sites.

The latest flare-up in geopolitical risk prompted a more defensive mood across global markets, lifting demand for the safe-haven US Dollar.

The Pound (GBP) held up relatively well on Tuesday, with Sterling avoiding sharper losses despite a quiet UK data calendar.

GBP has found support in recent sessions as domestic political uncertainty continues to ease. Following Prime Minister Keir Starmer’s resignation, several potential challengers have reportedly backed frontrunner Andy Burnham.

Markets have responded positively to the prospect of a relatively orderly handover, with months of speculation over Starmer’s position and fears of a damaging leadership contest now seemingly fading. Burnham is widely expected to become Prime Minister without a contest, while keeping the government’s existing fiscal rules in place.

This helped the Pound resist steeper losses against the US Dollar, even as a risk-averse market mood weighed on wider sentiment.

Near-Term GBP/USD Forecast: Could Fed Minutes Lift the US Dollar?

Looking ahead, the Federal Reserve’s June meeting minutes are due out on Wednesday evening and could drive movement in the US Dollar. If the minutes point to support among policymakers for further interest rate rises, the ‘Greenback’ may strengthen.

Market risk sentiment could also shape the GBP/USD exchange rate. Any further escalation in the Middle East may dampen appetite for risk, potentially boosting the safe-haven US Dollar while weighing on the increasingly risk-sensitive Pound.

Meanwhile, Sterling may continue to draw some support from the fading political risk premium that had previously weighed on GBP. However, with Labour leadership nominations set to open on Thursday, the Pound could struggle to find much upside.

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TAGS: Pound Dollar Forecasts