– Written by
Tim Boyer
STORY LINK Pound to Dollar Forecast: Politics, Fed Policy and Structural USD Trends Collide
The Pound to Dollar exchange rate (GBP/USD) is hovering around 1.36 as investors balance stronger US labour-market data against persistent political risk in the UK and lingering structural doubts over the US dollar outlook.
GBP/USD Forecasts: Multiple risks ahead
Bank of America (BoA) expects Pound to Dollar (GBP/USD) exchange rate gains to 1.45 by the end of 2026 as the dollar continues to lose ground.
SocGen, however, expects GBP/USD will retreat to 1.27 at the end of 2026 as the dollar regains ground and the Pound is unable to generate any traction.
ING expects both currencies will struggle with a year-end GBP/USD forecast of 1.36.
There was choppy GBP/USD trading during the week amid UK political drama and shifts in dollar sentiment with the pair settling close to 1.36.
Lloyds Bank commented on the technical outlook; “providing we can hold 1.3500 the overall upside bias ought to hold. We’d maintain longs while above there, but we would think about profit taking opportunities on an extension towards 1.3800.”
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ING still sees political risks for the Pound; “The softer dollar and the benign risk environment have provided support to GBP/USD, but sterling negatives remain. The most pressing is probably the UK political scene. Here, PM Keir Starmer’s judgement is being questioned over the appointment of Peter Mandelson as UK ambassador to the US, with some key allies having already resigned. Starmer’s departure would likely see Chancellor Rachel Reeves also leave – hitting sterling and Gilts.”
BoA considers“UK macro pessimism excessive” and is still looking to buy Sterling dips; “Our bias has been to fade GBP risk premium, but closer to historical extremes than current levels.”
The latest US labour-market data was stronger than expected with a 130,000 increase in non-farm payrolls for January while the unemployment rate edged lower to 4.3% from 4.4%.
SocGen has adjusted its forecast; “We now expect one rate cut in 2026, likely at the June FOMC meeting, with a risk that the data continues to force Fed policy makers to keep rates on hold to later in the year.”
A less accommodative Fed policy would tend to support the dollar.
HSBC commented on the dollar outlook; “Traditional cyclical drivers have once again lost their grip on the currency and the USD is at a discount to rate differentials. This shows that structural considerations are the dominant driver. These seem unlikely to be resolved anytime soon.”
Nordea sees scope for renewed dollar selling; “Even after quite a heavy USD weakening over the last year, the USD is still not very weak in a historical context. The fairly low term premiums we are seeing are also telling us that so far, foreigners have not backed out completely. In other words there could be more to come.”
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TAGS: Pound Dollar Forecasts
