Pound to Dollar Weekly Forecast: GBP Rebounds from 10-Month Lows but Risks Build

– Written by


Frank Davies

STORY LINK Pound to Dollar Weekly Forecast: GBP Rebounds from 10-Month Lows but Risks Build

The Pound to Dollar exchange rate (GBP/USD) has staged a sharp recovery from 10-month lows below 1.3140, but renewed equity-market losses have exposed Sterling to further volatility.

UBS sees scope for a longer-term advance towards 1.41, arguing that Dollar positioning has become increasingly stretched, while expectations of further Federal Reserve tightening and the UK’s October Budget leave the near-term outlook uncertain.

GBP/USD Forecasts: Volatility to surge

Despite initial vulnerability, UBS is backing Pound to Dollar (GBP/USD) exchange rate gains to 1.41 by the third quarter of 2027.

ING sees initial resilience, but has an end-2027 GBP/USD forecast of 1.34 as the Pound fails to make headway next year.

GBP/USD posted sharp losses to 10-month lows just below 1.3140 during the week before rebounding to above 1.33. Overall volatility increased with GBP/USD dipping to 1.3320 from 1.3370 as equity prices posted sharp losses.

The latest US inflation data recorded an increase in the headline inflation rate to 3.7% from 3.4% and above consensus forecasts of 3.6% while the core rate increased more than expected to 2.6% from 2.4% after a 0.3% monthly increase in prices.

The dollar posted sharp gains in immediate reaction to the data before a sharp reversal. Markets overall considered that the Federal Reserve would not decide on a rate hike at the October meeting.

There are, however, very strong expectations of a hike at the December meeting.

Standard Chartered commented; “A December rate hike now looks more like a done deal, especially as persistently higher oil prices keep headline and core inflation elevated for at least the next few months.Our base case remains for two more Fed hikes by June 2027.”

UBS is doubtful that the dollar can extend gains; “The USD looks increasingly stretched: Strong US data and higher rate expectations have lifted the dollar to year-to-date highs against most G10 currencies. However, positioning is becoming crowded and markets are already pricing an aggressive Fed outlook, leaving less room for a further hawkish shift.”

ING commented on the outlook for UK interest rates; “With energy prices staying higher for longer, it increasingly looks like the Bank of England might hike at its 5 November meeting. If it does, we suspect another hike will be coming in February-taking the policy rate to 4.25%.”

It added; “The Bank delivering on expectations of a rate hike should be a sterling positive-cementing its status as a G10 high-yielder.”

Fiscal policy will also be a key element ahead of the forthcoming budget with a particular focus on the bond market reaction. There are reports that bank taxes will be increased.

According to ING; “28 October is a UK event risk in the form of Prime Minister Andy Burnham’s first budget. Cost of living support measures should be announced, but we expect them to be funded, avoiding a Gilt market sell-off.”

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TAGS: Pound Dollar Forecasts