Trump rejects Iranian peace deal

By David Stritch, Senior FX Analyst, Caxton | 28 September 2026

Why is the pound still weak after Trump rejected Iran's peace proposal?

Sterling is trading near a three-month low against the US dollar, with GBP/USD opening at 1.3246 on Monday 28 September. President Trump's rejection of an Iranian peace proposal has pushed Brent crude up 3.3% and knocked risk appetite. That has helped the dollar, even though the Bank of England is still talking tough on inflation.

What happened?

President Trump rejected an Iranian proposal to end the conflict and reopen the Strait of Hormuz. That puts the Middle East back at the top of the market's list of worries.

Iran had put forward a plan to reopen the strait, the shipping lane that carries a large share of the world's seaborne oil. In a phone interview with Axios on Sunday, Trump said: "They want to make a deal, but it is not the deal that I want to make." He added that Iran had "overplayed their hand". He also said negotiators would hold further talks with Tehran this week, so the door isn't fully closed.

Oil reacted straight away. Brent crude, the global benchmark, gained 3.3% and trades around $107 a barrel, after falling more than 2% on Friday when markets had grown more hopeful of a deal.

Sterling opened the week on the back foot:

Why does this matter for currencies?

Higher oil prices and geopolitical risk tend to favour the US dollar and hurt energy-importing economies such as the UK. The pound is being squeezed on both fronts.

When tensions rise, global investors move money into the dollar because it is seen as the safest and most liquid place to wait. The US is also a net energy exporter, so an oil shock hits its economy less directly than the UK or the eurozone.

For Britain the picture is harder. More expensive energy feeds straight into household bills and business costs. That lifts inflation and weighs on growth at the same time, which is an uncomfortable mix for any currency.

This is why the Bank of England's hawkish stance hasn't helped much. On 17 September the Bank held Bank Rate at 3.75%. The vote was 6–3, and the three dissenters wanted a rise to 4%. The Monetary Policy Committee warned that if the Middle East conflict lasts, policy "may have to tighten". It also said UK inflation, which was 3.1% in August, could reach slightly over 4% in early 2027.

Normally that kind of language would support sterling. The problem is that the US Federal Reserve is sounding at least as hawkish, so the pound's interest-rate advantage is being cancelled out. Markets are also asking whether the UK economy can cope with the rate rises being priced in. Rate hikes that come alongside weak growth rarely lift a currency for long.

What is the market watching next?

Two data releases: US jobs numbers on Friday and Eurozone flash inflation. Talks with Iran could still overshadow both at any moment.

• US Non-Farm Payrolls (Friday): This is the monthly count of jobs added in the US. A strong reading would back the case for tighter Fed policy and could push GBP/USD lower. A weak one could give sterling some room.
• Eurozone flash CPI: This is the first estimate of September inflation in the euro area. August's figure was 3.3%, driven almost entirely by energy. Another high reading would keep pressure on the European Central Bank and could support the euro against the pound.
• US–Iran talks: Trump said negotiations will continue this week. Any sign of progress on Hormuz could lower oil prices quickly and ease the pressure on sterling. A breakdown would do the opposite.

What does this mean for businesses and individuals with currency exposure?

Volatility is high and the direction depends on headlines, so the main risk is getting caught out by a sudden move rather than guessing the direction wrong.

• Paying US dollar suppliers: A GBP/USD rate near three-month lows makes dollar invoices more expensive. If you have payments coming up, consider how much a further one or two cent fall would cost you.
• Receiving dollar revenue: Current levels work in your favour. Some businesses use this kind of window to lock in part of their expected income.
• Euro exposure: GBP/EUR has held up better. At 1.1632, euro payments are less affected than dollar payments for now, but this week's inflation data could change that.
• Large personal transfers: If you're buying property abroad or moving wealth between currencies, a sharp move on one headline can change the final amount by thousands.

One tool worth knowing about is the forward contract, which fixes an exchange rate today for a payment you'll make later. It won't get you the best possible rate, but it gives you certainty, and that is worth a lot in a market like this.

David's view

My read is that sterling is caught between two forces it can't control. The Bank of England is doing what it can by signalling it is ready to tighten. But the pound's direction now depends more on oil prices and the dollar than on anything happening in London. Until there is a clear answer on Hormuz, I'd expect sterling rallies to be short-lived and dips to come quickly on bad headlines. The fact that talks are continuing is the one real upside risk this week, and that is why positioning too heavily in either direction looks unwise to me.

Frequently asked questions

Why is the pound falling against the dollar?
Rising oil prices and Middle East tensions are drawing investors into the US dollar as a safe haven. Higher energy costs also threaten UK growth, which outweighs the support from the Bank of England's hawkish tone.

How does the Iran conflict affect exchange rates?
The conflict has disrupted oil flows through the Strait of Hormuz and pushed energy prices up. That tends to strengthen the dollar and weaken the currencies of energy importers such as the UK and the eurozone.

Will the Bank of England raise interest rates?
The Bank held rates at 3.75% in September, but three of its nine members voted for a rise. It has said policy may need to tighten if the conflict drags on, and markets are pricing in rises over the next year. Nothing is guaranteed.

When is the next US jobs report?
The US Non-Farm Payrolls report comes out this Friday. It is one of the most market-moving data releases for GBP/USD.

How can businesses protect against currency swings?
Options include forward contracts to fix a rate for future payments and rate alerts to track target levels. It is also worth reviewing upcoming currency exposure with an FX specialist.

If your business has international payments or receipts coming up, now is a good time to review how exposed you are. Caxton's FX dealers and International Payments team can talk you through options such as forward contracts and rate alerts, so a single headline doesn't decide your costs. Speak to the team today.

This article is for information only and does not constitute financial advice. Exchange rates can move quickly and past performance is not a guide to future performance.