Pound to Dollar Rate Forecast: Starmer Resignation Risk to GBP?

– Written by


Tim Boyer

STORY LINK Pound to Dollar Rate Forecast: Starmer Resignation Risk to GBP?

The Pound to Dollar exchange rate (GBP/USD) is being driven increasingly by political risk and central-bank uncertainty, with renewed pressure on Sterling following a knife-edge Bank of England vote and growing speculation over UK leadership stability.

While the dollar has stabilised after fears of debasement faded, a divided BoE and rising expectations of near-term rate cuts are leaving GBP/USD vulnerable, particularly if UK bond market tensions resurface.

GBP/USD Forecasts: Political risk

Standard Chartered sees scope for the Pound to Dollar (GBP/USD) exchange rate to decline to 1.3330 in the short term amid Pound vulnerability.

Bank of America expects that GBP/USD will strengthen to 1.45 by the end of 2026 as the dollar is subjected to controlled selling.

The Pound lost ground during the week with GBP/USD sliding to 10-day lows near 1.3500 before a correction to around 1.36.

Sterling was hurt by political and economic considerations while the dollar secured net gains as fears over dollar debasement continued to ease following the nomination of Warsh as the next Fed Chair.

There is still a high degree of uncertainty over Federal Reserve policy, but markets are not expecting a further move until the second quarter.

According to Scotiabank; “A Warsh Fed is expected to cut rates in the near term, of course. But less clarity and more uncertainty about the policy outlook generally may prompt some significant adjustments in market behaviour and risk management in the long run. Investors will have to focus a little more intently on fundamentals and how risk is priced.”

The bank also noted potential implications for the Pound; “perhaps generally higher implied vol will have implications for investor demand for riskier FX assets (EM, high beta) and trading strategies (carry, leverage).”

Bank of America expects measured dollar losses; “We remain bearish but feel some of the hype over concepts such as debasement and sell America are overdone at this stage. Evidence so far does not support these claims though we do remain attentive going forward.”

Domestically, the Bank of England held interest rates at 3.75%, in line with strong expectations, but there was a surprise on the vote split with a 5-4 vote for decision as four dissenters called for a further 25 basis-point cut.

In response, there were stronger expectations of a cut at the March meeting with traders also pricing in two cuts for 2026.

According to ING; “Another heavily divided Bank of England decision lowers the bar for a rate cut next month. So long as the data continues to follow recent trends – weaker employment, lower wage growth, easing inflation – then we think a March cut is likely to be followed by another in June.”

Standard Chartered is bearish on the outlook; “the cooling UK job market raises the odds of rate cuts in the coming months.”

UK political and economic factors will be entwined through the bond market.

According to ING; “In terms of politics, pressure is building on PM Keir Starmer to step down. The replacement ticket of Angela Rayner as PM and Wes Streeting as Chancellor would initially be seen as a shift to the left and add to the fiscal risk premium demanded in the pound.”

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TAGS: Pound Dollar Forecasts