Pound Sterling Edges Near Weekly Low as Middle East Tensions Elevate US Dollar
The Pound Sterling (GBP) hovered close to its weekly low against the US Dollar (USD) on Thursday amid mounting geopolitical tensions in the Middle East that boosted demand for the safe-haven US currency. The GBP/USD currency pair extended its decline for a third consecutive session, briefly touching levels near 1.3370 during the Asian trading hours before a slight recovery to around 1.3400, marking a day’s loss of roughly 0.15%.
Geopolitical Concerns Drive USD Strength
The ongoing escalation of conflict in the Middle East has been a major factor underpinning USD strength this week. Iran’s Islamic Revolutionary Guard Corps (IRGC) announced a joint operation with Lebanon’s Hezbollah targeting locations in Israel, Jordan, and Saudi Arabia. This development follows intense US-Israeli air raids on Iranian positions earlier this week and signals an intensification of hostilities involving these regional actors. The conflict has heightened investor risk aversion, prompting a global flight to safety that has benefited the US Dollar.
In parallel, attacks on two tankers in the northern Persian Gulf near Iraq and Kuwait further pressured energy supply concerns, pushing crude oil prices higher. Rising oil prices stoke fears of increased inflationary pressures worldwide and have contributed to upward pressure on US Treasury yields. Higher yields enhance the US Dollar’s appeal to investors, further weighing on the GBP/USD pair.
Inflation Data and Central Bank Outlooks Offer Mixed Signals
Despite these inflation fears, the US Consumer Price Index (CPI) data released Wednesday revealed only moderate price growth, suggesting that inflationary pressures may not accelerate sharply in the near term. This data temper the prospects for aggressive Federal Reserve (Fed) rate hikes and leave open the possibility for future rate cuts, which has somewhat capped the US Dollar’s rally.
Conversely, the Bank of England’s (BoE) interest rate expectations have shifted towards a more hawkish stance. Market sentiment has flipped from anticipating multiple BoE rate cuts to factoring in a potential rate hike by the end of the year. This tighter monetary policy outlook supports the British Pound and limits any further downside in GBP/USD.
Market Participants Await Key Economic Releases and BoE Comments
Traders remain cautious and look forward to BoE Governor Andrew Bailey’s speech scheduled later Thursday for additional guidance on UK monetary policy. Upcoming economic data releases, including the UK’s monthly Gross Domestic Product (GDP) report and the US Personal Consumption Expenditure (PCE) Price Index on Friday, are also eyed closely as indicators of economic health and inflation trends.
However, geopolitical developments in the Middle East continue to dominate market sentiment. Investors remain wary of how the conflict-induced rise in inflationary pressures could influence central bank policies globally, potentially injecting volatility into currency and broader financial markets.
Background: The Pound Sterling and Its Influencers
The Pound Sterling, the UK’s official currency and one of the oldest currencies globally dating back to 886 AD, is heavily influenced by the Bank of England’s monetary policies. Interest rate decisions aimed at maintaining price stability around a 2% inflation target typically have a significant impact on GBP valuation.
Economic data—such as GDP growth, purchasing manager indexes (PMIs), employment figures, and trade balance reports—further shape market perceptions of the UK economy’s strength and guide expectations of BoE policy moves. A robust economy and tighter monetary policy generally support the Pound, while weaker economic indicators and expectations of rate cuts tend to weigh on its value.
In the current environment, external geopolitical risks and their inflationary implications are increasingly critical factors alongside traditional economic fundamentals influencing the Pound-Dollar exchange rate dynamics.
Summary
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GBP/USD settled near the weekly low of 1.3370 before rebounding modestly.
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Middle East conflict escalations have increased demand for the safe-haven USD.
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Rising crude oil prices due to tanker attacks strengthen inflation concerns, lifting US Treasury yields.
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US CPI data indicates moderate inflation, tempering Fed rate hike expectations.
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BoE interest rate expectations have turned hawkish, supporting GBP.
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Market focus shifts to BoE Governor Andrew Bailey’s speech and key economic data.
Amid ongoing geopolitical risks and mixed economic signals, the GBP/USD pair faces a cautious trading backdrop, balancing safe-haven flows with evolving central bank policy outlooks.
Written by Haresh Menghani
FXStreet
March 12, 2026