Pound Sterling to Dollar Forecast: Political Shock Caps GBP Gains

– Written by


David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: Political Shock Caps GBP Gains

The Pound to Dollar exchange rate (GBP/USD) traded lower on Friday as political fallout from the Greens’ victory in the Gorton and Denton by-election offsets support from buoyant equity markets.

Although the FTSE 100 index posted a fresh record high, Sterling has struggled to sustain upward momentum, with markets reassessing UK political stability and the implications for fiscal and monetary policy.

GBP/USD Forecast: Lower Despite Record FTSE 100

The Pound to Dollar (GBP/USD) exchange rate made significant headway earlier in the week, peaking at 1.3575 before retreating sharply and slipping back below the 1.3500 level.

Sterling initially drew support from firm global risk appetite and positive spillovers from strong Nvidia earnings, while UK gilt yields eased further, with the 10-year yield around 4.32% and close to 15-month lows.

However, the Greens’ victory in the Gorton and Denton by-election has injected fresh uncertainty into UK politics, reinforcing speculation over Prime Minister Starmer’s authority and the broader fiscal outlook.

While some political risk had already been priced into Sterling, the scale of Labour’s defeat has revived concerns about leadership stability and potential policy shifts, limiting the Pound’s ability to benefit from positive equity sentiment.

According to UoB; “as long as GBP holds above 1.3525 (minor support is at 1.3530), GBP could rise and test 1.3585. A break above this level is not ruled out, but based on the current momentum, any further advance is unlikely to break above the major resistance at 1.3605.”

UBS considers short-term fair value for GBP/USD to be closer to 1.33, potentially capping upside rallies.

Trade and Geopolitical Uncertainty Still in Focus

Broader dollar trends remain influenced by US trade policy uncertainty and geopolitical risk.

There is continued ambiguity surrounding tariff implementation following the Supreme Court ruling against IEEPA tariffs, with limited clarity on how revised measures interact with existing trade agreements.

Westpac commented; “The U.S. Trade Representative offered no details regarding how the higher tariff will be applied in situations where it breaches U.S. trade deals.”

Danske Bank added; “The decision curbs Trump’s ability to use rapid tariff changes for pressuring trading partners and turns the trade policy from being a negotiation tool into primarily a revenue tool.”

Geopolitical tensions surrounding Iran also remain a background risk.

ING noted; “At this stage, any escalation there looks like the most plausible catalyst for a broader dollar rally.”

For now, Sterling is caught between supportive global equity conditions and renewed domestic political fragility, leaving GBP/USD vulnerable below 1.35 unless political tensions subside.

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TAGS: Pound Dollar Forecasts