Pound Sterling to Dollar Forecast: Middle East Risks Support USD, GBP Rally Stalls

Modified: Tuesday, 14 July 2026 13:21 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: Middle East Risks Support USD, GBP Rally Stalls

The Pound to Dollar exchange rate (GBP/USD) held above the 1.3400 level despite renewed Middle East tensions lifting oil prices and supporting the US Dollar.

Sterling remained relatively resilient as investors balanced geopolitical risks against growing doubts over how much further the Dollar can rally, with attention now turning to key US inflation data and Federal Reserve Chair Kevin Warsh's congressional testimony.

GBP/USD Forecasts: Held Below 3-Week Highs

The Pound to Dollar (GBP/USd) exchange rate dipped to 1.3370 in Asian trading on Monday before regaining the 1.3400 level as European currencies showed some resilience despite higher oil prices.

According to UoB; “the GBP advance from late last month has ended, and for the time being, we expect GBP to trade in a range between 1.3320 and 1.3445.”

Scotiabank is more positive on the outlook; “The recent break through 1.34 resistance around levels corresponding to both the 50 and 200 day MA’s has been equally important, opening up the potential for a push through dense resistance between current spot and 1.3500.”

Given market positioning, Thomas Mathews, head of markets for Asia Pacific at Capital Economics is not convinced that the dollar can make much headway; "It's not clear to me the greenback would gain as much this time if the situation continued to worsen, which I think is probably reflected in trade so far."

There were further concerns surrounding the Middle East situation with the US and Iran trading blows amid the on-going battle to control shipping through the Strait of Hormuz.

The US has been promoting the transit of shipping through the Oman sector of the Strait, but Iran is pushing hard to avoid this and maintain its control.

Oil prices moved higher and Asian equity markets lost ground, although the FTSE 100 index was little changed.

ING commented; “US energy independence will come back to the fore if Iran is effective in re-closing the Strait of Hormuz. And this time around, US rates should rise along with overseas rates given that prospects of Fed tightening are now live.”

MUFG takes a similar short-term view; “A significantly higher price of oil has the potential to be a more powerful bullish catalyst for the US dollar now that the Fed has indicated recently that it is considering raising rates in response to upside inflation risks.”

In this context, the latest US inflation data will be watched closely for evidence on underlying inflation. Given the sharp dip in oil prices last month, consensus forecasts are for the headline inflation rate to retreat to 3.8% from 4.2% while the core rate is expected to edge lower to 2.8% from 2.9%.

Another key event will be Fed Chair Warsh’s testimony to Congress on Tuesday and Wednesday.

Markets are still attempting to divine Warsh’s underlying thinking on the economy and monetary policy with his testimony very important for interest rate expectations.

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TAGS: Pound Dollar Forecasts