Image © Adobe Images
The pound-dollar exchange rate is up 1.77% this week, but analysts at Citi warn the dollar isn't done.
This will be the second-largest weekly advance for sterling against the dollar in 2026, reflecting trader hopes that the war in the Middle East will soon end and global energy supplies will start to increase.
"The announcement of a US-Iran ceasefire has catalysed a sharp uptick in risk sentiment and unwind of cross-asset moves experienced over the conflict. The net result for FX has been broad-based USD selling," says a note from Citi, the global investment bank.
Gains take GBP/USD from channel lows at 1.3160 up to 1.3480, which will likely be confirmed as the new range high. A look at the chart shows this resistance level has acted as a handbrake for recoveries since the beginning of March, and that's likely to remain the case for the near-term.
Those with GBP outgoings should consider how any impediment to further advances will impact their exposure and think locking some of the outgoings near current levels would offer good protection.
Above: GBP/USD at weekly intervals.
Structural market restraints on pound sterling's ability to advance against the dollar reflect the underlying geopolitical difficulties regarding war and oil: the situation in Iran remains far too opaque to generate a meaningful GBP recovery.
"It might be too early to buy USD dips given 'cash on the sidelines' willing to chase current price action and scope for FX pairs to retrace towards pre-conflict levels. But we see a low bar for tensions to re-emerge and our assessment of the macro backdrop is still one with a stagflationary tilt," says Citi in a weekly FX update.
"Owning USD is attractive into such a backdrop, in our view," it adds.
On a £50,000 GBP/USD transfer, Horizon Currency clients typically receive $300–$800 more than high-street banks: no transfer fees, FCA-regulated, with a dedicated specialist.
Secure Your Rate Before It Moves Again →
Citi's FX strategists confirm they like owning USD into the current stagflationary tilted backdrop with a low bar for tensions to re-emerge.
They don't expect changes in interest rates or equity markets to provide a strong tailwind for the USD, but see the USD remaining firm for some time after crude oil has peaked.
However, analysts at HSBC are more dovish on the dollar's prospects, meaning GBP/USD could be better supported in the coming weeks.
"It’s been close to mission impossible to navigate the headlines around the Iran conflict and what it means for FX. But it has meant a timely red light on the USD’s fall; easing tensions would give the green light for resumed softening," says HSBC in its latest monthly global strategy update.
Strategists say the stop-and-go nature of geopolitical risk is not enough to change our big picture views of USD softness and select optimism elsewhere.
"A lack of Fed tightening bias and strong pre-conflict global growth momentum could limit the degree of USD strength," they add.