GBP/USD Weekly Forecast: Pound under pressure as Middle East war boosts Dollar
- Pound Sterling crumbled to three-month lows against the US Dollar, 1.3250 tested.
- GBP/USD keeps an eye on the Middle East conflict ahead of the US inflation data.
- Technically, the path of least resistance appears to the downside for GBP/USD.
The Pound Sterling (GBP) hit the lowest level in three months against the US Dollar (USD) near 1.3250 and staged a modest rebound, but ended the week deep in the red.
Pound Sterling pounded on Middle East conflict
It was all about turning to the safe-haven and the world’s reserve currency, the USD, this week as the United States-Israel attack on Iran set off a deeper escalation in the Middle East and rattled global markets.
The conflict deepened after the Israel Defense Force (IDF) struck Hezbollah targets in Beirut and across Lebanon in response to rocket fire. Meanwhile, the UK Defence Ministry stated that British forces responded to a suspected drone strike at its military base in Cyprus.
US President Donald Trump said that attacks would continue until US objectives were met, pledging to respond to an attack on the US embassy in Riyadh and to the deaths of US military personnel during the Iran conflict.
In a firm response, Iran’s Islamic Revolutionary Guard Corps (IRGC) Navy stopped the passage of commercial traffic through the Strait of Hormuz, sending oil prices through the roof alongside inflation expectations globally.
Markets went into a ‘sell everything’ mode, smashing risk-sensitive currencies such as the Pound Sterling, while bolstering haven demand for the Greenback. The USD also received strong support from a hawkish shift in the US Federal Reserve (Fed) monetary policy expectations amid higher inflation projections.
Strong US economic data releases, including the ADP jobs report, ISM Manufacturing and Services PMI data doubled down on the renewed hawkish Fed bets.
Data published by ADP showed on Wednesday that US private employers added 63,000 jobs in February, above the market forecasts of 50,000. The ISM said that the US service sector activity strengthened sharply in February, with the headline index rising from 53.8 to 56.1, well above the market forecast of 53.5.
The US Bureau of Labor Statistics announced on Friday that Nonfarm Payrolls (NFP) declined by 92,000 in February. This reading followed the 126,000 (revised from 130,000) increase recorded in January and missed the market expectation for an increase of 59,000 by a wide margin. Additionally, the Unemployment Rate edged higher to 4.4% from 4.3% in January. The disappointing labor market data limited the USD's gains heading into the weekend and helped GBP/USD hold its ground.
On the United Kingdom (UK) front, markets cast doubt on whether the Bank of England (BoE) will cut rates in its March 19 monetary policy meeting, as the Middle East conflict raised stagflation risks in the economy due to surging energy prices. “The UK inflation has been well above the 2% target; a further increase in price pressures would discourage BoE officials from easing monetary conditions,” FXStreet’s Analyst Sagar Dua explained.
All eyes on Middle East updates and US CPI
Developments in the Middle East war will continue to remain the central focus in the upcoming week, driving the GBP/USD price action.
On the data front, it’s a relatively quiet calendar in the early part of the week until the US Consumer Price Index (CPI) data on Wednesday, which will stand out ahead of Thursday’s monthly UK Gross Domestic Product (GDP) release.
Bank of England (BoE) Governor Andrew Bailey will deliver opening remarks at the Financial Stability Board Payments Summit in London on Thursday.
Friday will feature the US second estimate of the fourth-quarter GDP and Personal Consumption Expenditures (PCE) Price Index. The delayed US JOLTS data will also be released later in the North American session that day.
The Fed policymakers will refrain from commenting on monetary policy as the US central bank enters its ‘blackout period’ on Saturday ahead of the March 17-18 meeting.
GBP/USD Technical Analysis
The near-term bias stays mildly bearish as spot holds below the 21- and 50-day Simple Moving Averages (SMAs) and approaches the flatter 100- and 200-day SMAs around 1.34. The short-term averages have rolled over and now cap the upside, while price pressure gravitates toward the longer-term cluster, hinting at a transition from prior uptrend to consolidation with a downside tilt. The Relative Strength Index (RSI) near 34 reinforces building bearish momentum but has not yet entered oversold territory, leaving room for further weakness before dip demand strengthens.
Immediate resistance emerges at the 21-day SMA near 1.35, with the 50-day SMA around 1.35–1.36 acting as the next barrier on any corrective rebound. A daily close above this zone would be needed to ease downside pressure and open the way back toward 1.37. On the downside, initial support is located near the 100-day SMA around 1.34, followed by the 200-day SMA just above 1.34, forming a key demand area. A clear break below this band would extend the bearish phase and expose successive supports toward 1.33 and 1.32.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
