USD/GBP has remained under pressure since early April, driven mainly by uncertainty among central banks over how the conflict in Iran could affect inflation and energy prices. On Thursday, April 30, a fresh batch of economic data reinforced the cautious stance adopted by both the Federal Reserve (Fed) and the Bank of England (BoE).
Over the past month, the pair has fallen 2.8%, with ongoing tensions in the Middle East continuing to fuel market volatility.
While recent inflation data from both the United States and the United Kingdom drew attention, markets remained focused on the broader energy risks linked to the closure of the Strait of Hormuz, which has become a key factor behind the cautious outlook.
Energy driving USD/GBP
For currency traders, USD/GBP has increasingly behaved like a proxy for crude oil rather than reacting primarily to interest rate differentials, though energy market disruptions have also directly influenced monetary policy expectations on both sides of the Atlantic.
Over the past week, the pair has maintained a notably strong correlation with Brent crude, ranging between 0.96 and 0.97. In practical terms, this suggests that USD/GBP tends to rise alongside oil prices and fall when crude declines. Since correlations closer to 1 indicate an almost perfect relationship, the current pattern highlights the extent to which oil prices are steering movements in the pair.
Recent volatility in crude — which briefly surged nearly 7% to a four-year high of $126 per barrel — was largely triggered by reports that the US military was preparing to brief President Donald Trump on potential new actions involving Iran.
“We saw oil prices climb on fears over supply disruptions, making energy one of the few sectors to post gains,” Wealthify said in its monthly market summary. “Equity markets declined broadly, with losses across the US, Europe, the UK, and Asia, leaving investors with limited regional shelter.”
“The Federal Reserve kept rates unchanged in March, but rising oil prices and inflation concerns cast uncertainty over future rate cuts, pressuring bond prices lower. In the UK, mounting inflationary pressures alongside a softer labour market strengthened expectations that the Bank of England may keep rates elevated for longer, with the possibility of another hike later this year.”
The connection between energy markets and USD/GBP has therefore become a dominant force shaping sentiment, often overshadowing corporate earnings and other macroeconomic drivers. At the same time, interest rate expectations themselves are increasingly being influenced by the Middle East conflict, with recent central bank guidance offering key clues about the future direction of both the US Dollar and the British Pound.
Rates fuel cautious optimism
Thursday, April 30, 2026, brought a wave of central bank updates with important implications for USD/GBP.
The Bank of England (BoE) began the day by keeping its benchmark interest rate unchanged at 3.75%, while warning that the conflict in Iran could eventually trigger further inflation pressures and potentially require additional rate hikes.
The decision to hold rates passed by an 8–1 vote, though policymakers signaled that future tightening remains possible, including the prospect of more aggressive increases if inflation risks intensify.
Meanwhile, the United States released its March Personal Consumption Expenditures (PCE) Price Index data. Headline inflation came in slightly below expectations at 3.5%, versus forecasts of 3.6% from economists.
Excluding volatile food and energy prices, the Federal Reserve’s preferred core inflation measure rose 3.2%, matching market expectations and once again underscoring the uncertain influence of geopolitical tensions in the Middle East.
Additional US economic data released Thursday showed weekly jobless claims falling to 189,000 — the lowest level in more than 50 years — signaling ongoing resilience in the labor market and strengthening hopes for continued economic recovery.
While strong US labor data would normally support the Dollar against the Pound, expectations that the BoE may raise rates further are emerging as a key bullish factor for Sterling.
Markets now appear to be pricing in a more hawkish outlook for the UK, whereas sentiment in the United States is becoming comparatively more cautious despite elevated inflation linked to the Iran conflict. Although the Federal Reserve also left rates unchanged recently, several major financial institutions — including Capital One Financial, Synchrony Financial, and Marcus by Goldman Sachs — have already reduced yields on high-yield savings accounts.
These developments highlight growing differences in the monetary policy outlook between the two sides of the Atlantic, a divergence that forex traders are likely to monitor closely in the months ahead.
What’s next for USD/GBP?
The prospect of a more hawkish stance from the Bank of England, fueled by rising energy-driven inflation, could place further downward pressure on USD/GBP in the coming weeks. However, the key factor shaping the pair’s direction will remain developments surrounding the conflict in Iran and the continued closure of the Strait of Hormuz.
If the conflict drags on and keeps energy markets under strain, the BoE may be forced to respond with more aggressive rate hikes to contain inflationary pressures. In contrast, the Federal Reserve could continue facing political pressure from the US administration to lower interest rates, even as higher oil prices complicate the inflation outlook.
Against this backdrop of heightened volatility and uncertainty, a prolonged Middle East conflict could potentially drive USD/GBP toward the 0.71 level. At the same time, expectations for future US rate cuts may extend the Dollar’s broader long-term weakness against major global currencies.
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