Pound Sterling forecasts see a climb to 1.40 by December as UK political risks ease, short positions unwind and Fed hike expectations fade.
The Pound to Dollar (GBP/USD) exchange rate finished Friday at 1.3645 after reaching an August high of 1.3675, leaving Sterling 0.82% higher over five sessions.
UBS strategists Constantin Bolz and Dominic Schnider have kept a distinctly bullish Sterling profile, arguing that one of the Pound’s biggest domestic obstacles is starting to change direction.
“UK politics have shifted from a headwind to a potential tailwind,” they said, while also pointing to a market that remains relatively light on Sterling exposure.
That matters because the bank sees scope for further short-covering if investors become more comfortable with the UK political outlook and the Federal Reserve tightening story continues to fade.
Bolz and Schnider add that “[Pound] Sterling remains relatively under-owned,” leaving the currency with room to gain if investors reduce bearish positions.
GBP/USD at 1.40 by Year-End
UBS forecasts GBP/USD at 1.40 in December 2026 and 1.41 in March, June and September 2027, with resistance around 1.38 the first major obstacle before the year-end target.
The call is notably above the Exchange Rates UK Research Currency Forecast Sentiment Survey median of 1.3446 for the fourth quarter of 2026, highlighting how constructive the UBS view has become.
On the downside, UBS identifies support near 1.33 and then 1.32, levels that would come back into focus if US rate expectations reverse or UK political sentiment deteriorates.
The combination of fading Fed-hike risk and under-owned Pound Sterling gives the upside case more traction, although a convincing break through 1.38 would still be needed to make 1.40 the market’s immediate target.
Our currency coverage draws on live market data, official economic releases and published bank research.
