– Written by
Frank Davies
STORY LINK Pound Sterling to Dollar Forecast: Potential Near-term GBP Consolidation
The Pound to Dollar exchange rate (GBP/USD) has pulled back to around 1.3730 after failing to sustain four-year highs above 1.3850, as a sharp reversal in gold, silver and global equities triggered a bout of defensive dollar demand.
While the move has cooled Sterling’s momentum, banks remain cautious about calling a durable dollar recovery amid lingering concerns over Federal Reserve independence and fading safe-haven credibility.
GBP/USD Forecast: Dollar Stabilisation Masks Deeper Confidence Concerns
The dollar attempted to stabilise on Wednesday but failed to secure a convincing recovery, with underlying sentiment still fragile despite a more cautious tone from the Federal Reserve.
The Pound to Dollar exchange rate (GBP/USD) has retreated to around 1.3730 after briefly surging to four-year highs above 1.3850 earlier in the week, with the move lower coming amid a sharp correction in gold, silver and global equity markets.
The sell-off in precious metals and stocks prompted some defensive dollar demand, curbing Sterling’s momentum even as broader confidence in the US currency remains strained.
According to UoB, consolidation is likely;
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“We view the current price movements as part of a range-trading phase, likely between 1.3750 and 1.3850.”
The crucial medium-term psychological level for the pair remains 1.40. BNP Paribas is not backing a break and has an end-2026 GBP/USD forecast of 1.30.
The Federal Reserve held interest rates at 3.75%, in line with strong market expectations. The decision was taken by a 10-2 vote, with Miran and Waller backing a further 25bp rate cut.
The accompanying statement was slightly more optimistic on the economic outlook, with reduced concern over labour-market conditions.
Chair Powell declined to offer meaningful guidance on the timing of future rate cuts and avoided engaging directly on questions surrounding political pressure and Fed independence.
Markets are now pricing in only around a 15% chance of a March rate cut, with expectations centred on two cuts by the end of 2026.
According to Danske Bank;
“The next rate cut is fully priced in by July. We see risks tilted towards faster easing and expect cuts in March and June.”
MUFG expects the dollar’s yield support to fade over time;
“While rate expectations have not been a catalyst for dollar selling in January, positioning in rates should help limit the risk of a rebound in the dollar if or when rate expectations become a bigger influence on FX.”
ING focused on broader headwinds for the US currency;
“The modest USD reaction to the Fed confirms there is very little influence of short-term rates on USD crosses at the moment.”
It added;
“There are no signs that markets are ready to unwind dollar pessimism just yet. We may well be in the middle of a significant increase in USD hedging as the dollar’s safe-haven value deteriorates, and it remains risky to try to pick a bottom when moves are detached from macro fundamentals and rates.”
The issue of Federal Reserve independence remains a key overhang for the dollar, with the Supreme Court still yet to rule on whether the Administration can dismiss Fed Governor Cook.
NAB head of FX strategy Ray Attrill warned;
“Loss of independence is far and away the biggest risk to ongoing dollar hegemony.”
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TAGS: Pound Dollar Forecasts
