Pound Serling could recover modestly against the US Dollar before weakening into 2027, with Goldman Sachs retaining a cautious longer-term outlook.
Goldman Sachs expects the Pound to Dollar exchange rate to fall to 1.28 over the next 12 months, with a modest near-term recovery giving way to renewed weakness in 2027.
Its 5 October 2026 forecasts put GBP/USD at 1.33 in three months and 1.29 in six months, before the further decline to 1.28.
Sterling traded near 1.3216 on Wednesday afternoon, down 0.38% from Tuesday’s close as the previous session’s rebound faded.
Against that level, Goldman’s three-month projection allows only a small improvement, while its year-ahead target implies a decline of approximately 3.1%, according to our calculation.
The sequence is unchanged from the projections covered in our September analysis of Goldman’s cautious Sterling outlook.
A delayed Fed hike leaves the longer-term call intact
Goldman retains those targets despite disappointing American labour-market data and lower-than-expected underlying inflation prompting a change to its US interest-rate timetable.
The September US employment report showed payrolls rising by just 29,000, adding to evidence of subdued hiring.
The bank’s portfolio strategy team, including Andrea Ferrario and Christian Mueller-Glissmann, writes:
“Our US economics team pushed their next and last expected Fed hike to December and still expect 3 cuts until Q1 2028.”
Delaying an expected increase can take some immediate pressure off Sterling by reducing the prospect of a near-term rise in US yields.
Yet Goldman still anticipates one more Fed hike before cuts begin, leaving a less supportive backdrop for a sustained Pound recovery than an immediate shift to easing would provide.
The currency forecasts also distinguish between the Dollar’s different counterparts: the same table projects US currency losses against the Yen and Australian Dollar over 12 months, even as the Pound falls against it.
That combination suggests Sterling’s own vulnerabilities matter to the outlook, rather than the 1.28 target reflecting a uniformly bullish view of the Dollar.
The broader market backdrop offers little certainty of relief: Goldman reports that financial pressure has spread from interest rates into government and corporate credit, with European equities affected more clearly than US shares.
Lower energy prices or further US disinflation could improve that picture, the team says, easing rate pressure while supporting investors’ appetite for risk.
Sterling’s own rate support remains in question
In Goldman’s September assessment of fading Sterling support, the bank expected a November Bank of England increase but judged that markets were anticipating too much subsequent tightening.
It also identified fiscal risks from higher energy and government borrowing costs.
A November increase could therefore be consistent with a weaker Pound: if investors subsequently price in less tightening, Sterling would lose some of the yield support already reflected in its price.
The Bank of England’s September decision illustrates why that adjustment is uncertain: policymakers held Bank Rate at 3.75%, but three of the nine members preferred an increase to 4%.
The majority was willing to wait, with little evidence so far that the energy shock was feeding more widely into wage and price-setting.
But the Bank warned that the longer energy prices stayed high or volatile, the greater the risk of those effects taking hold.
More sustained UK tightening than Goldman anticipated in September would challenge its assumption that Sterling’s rate support will fade.
