– Written by
Frank Davies
STORY LINK Pound Sterling to Dollar Forecast: GBP/USD Supported by Dovish Fed Expectations
The Pound to US Dollar exchange rate (GBP/USD) edged higher at the start of the week, buoyed by an improvement in overall market sentiment which lent support to the pairing.
At the time of writing, GBP/USD was trading around $1.3381, up roughly 0.2% from its opening levels during the European session.
The US Dollar (USD) opened the week on the back foot as a brighter market mood reduced demand for the safe-haven ‘Greenback’.
Improved risk appetite followed growing optimism that global borrowing costs could fall further in 2026, with several major central banks expected to deliver additional interest rate cuts.
The Federal Reserve remains a focal point after trimming rates last week and striking a notably dovish tone. Expectations that US policymakers are now firmly on an easing path helped lift broader sentiment while simultaneously weighing on the Dollar.
USD demand was also muted ahead of key US labour market data later in the week, with investors wary that further signs of cooling employment could reinforce bets on additional Fed rate cuts.
The Pound (GBP) found modest support on Monday despite a lack of clear domestic catalysts.
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Against the US Dollar, the increasingly risk-sensitive Pound benefited from improved global sentiment, which reduced demand for traditional safe-haven currencies.
Sterling also advanced against several higher-risk peers, even as UK economic data remained sparse and offered little in the way of direction.
GBP/USD Exchange Rate Forecast: UK and US Jobs Reports Take Centre Stage
Looking ahead, GBP/USD volatility may increase as fresh labour market data from both the UK and the US comes into focus.
The UK’s latest employment report could act as a headwind for Sterling. Forecasts suggest unemployment rose to 5.1% in the three months to October — the highest level since early 2021 — while wage growth is expected to have softened. Evidence of a cooling labour market would likely strengthen expectations that the Bank of England (BoE) will deliver multiple rate cuts in 2026.
Preliminary UK PMI figures for December are also due, though with activity expected to remain subdued, they may offer limited support for the Pound.
For the US Dollar, attention will centre on incoming labour data, including delayed non-farm payrolls reports for October and November. Any signs of weakening employment conditions could pressure USD further by reinforcing expectations of continued Federal Reserve easing.
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TAGS: Pound Dollar Forecasts
