Pound Sterling to Dollar Forecast: US Consumer Confidence, Risk Sentiment in Focus

– Written by


Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: US Consumer Confidence, Risk Sentiment in Focus

The Pound US Dollar (GBP/USD) exchange rate gave up its early gains on Monday, with Sterling unable to build on optimism surrounding the potential for a new ceasefire in the Middle East.

At the time of writing, GBP/USD was trading at $1.3311, down approximately 0.1% on the day.

The US Dollar (USD) initially weakened on Monday as the US and Iran refrained from exchanging fire for a third night in a row, raising hopes that a ceasefire could be reached and diplomatic efforts could take centre stage.

Reports suggested Washington had paused its strikes after senior military officials warned that US weapons supplies were coming under pressure, while Iran suspended its own ‘retaliatory’ attacks.

The easing of tensions encouraged a more positive risk appetite across markets, putting pressure on the safe-haven US Dollar.

However, USD later recovered some of its losses. Concerns over ongoing instability in the Middle East remained after Yemen’s Iran-backed Houthi militia reportedly carried out drone strikes targeting Saudi oil transport infrastructure on Monday, preventing tensions from fully subsiding.

The Pound (GBP) was largely subdued on Monday as attention turned towards the Bank of England (BoE) interest rate decision due later in the week.

The easing of hostilities in the Middle East pushed oil prices lower, reducing expectations that the BoE would adopt a more hawkish stance when it announces its latest policy decision on Thursday. This, in turn, limited Sterling’s upside.

With energy costs retreating amid fresh hopes for a diplomatic resolution, the Bank of England may be more inclined to stick with its cautious approach, avoiding a swift policy response to developments surrounding the US-Iran conflict.

Near-Term GBP/USD Forecast: US Consumer Confidence in Focus for the ‘Greenback’

Looking ahead, the latest US consumer confidence figures are due on Tuesday. An uptick in morale could provide some modest support for the US Dollar.

However, the broader direction of the ‘Greenback’ may continue to be shaped by shifts in risk appetite. If the US and Iran maintain the current pause in hostilities, improving hopes of a peace agreement could encourage a risk-on tone and reduce demand for the safe-haven US Dollar.

For the Pound, a quiet UK data calendar may leave Sterling traders focused on domestic political developments. Questions over how the government plans to finance some of the policies announced by new Prime Minister Andy Burnham could create headwinds for the Pound.

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