Pound To Dollar Week Ahead Forecast: Fed Hike Bets Keep GBP Under Pressure

The Pound-Dollar could remain under pressure if US payrolls reinforce Fed hike expectations, while Sterling lacks clear domestic support.

The Pound US Dollar (GBP/USD) exchange rate tumbled to a two-month low last week amid strengthening bets that the Federal Reserve will raise interest rates faster than previously thought.

At the time of writing, GBP/USD was trading at around $1.3236. A roughly 1.2% slump from the start of last week’s session.

DAILY RECAP:

The US Dollar (USD) initially traded sideways this week as a pullback in oil prices and hopes of progress in US-Iran diplomacy eased some of the geopolitical uncertainty that had been supporting the safe-haven ‘Greenback’.

However, USD sentiment quickly turned bullish as impressive US macroeconomic data saw investors begin to price in a more aggressive pace of monetary tightening from the Federal Reserve.

The release of September’s preliminary US PMI figures proved particularly supportive for USD, with the composite index jumping to 58.4, its highest level since July 2021.

Together with some stronger-than-expected US employment data, this saw investors increase their bets on another 25-basis-point hike at the Fed’s October meeting, with the probability rising to around 70% from 50% at the start of the session.

The Pound (GBP) struggled through the opening stretch of last week, weighed down by an unexpected surge in UK public borrowing that shone an uncomfortable light on the state of the Treasury’s finances.

With sovereign bond yields already hovering at multi-year highs, the ballooning deficit only added to anxieties over how little fiscal headroom Chancellor John Healey will have at his disposal for next month’s crucial Autumn Budget.

Midweek trading brought fresh headwinds for the Pound, as preliminary PMI data revealed a sharper-than-anticipated slowdown across the vital services sector in September.

However, Sterling was able to stem the bleeding by the end of the week, drawing some modest support from hawkish remarks from a Bank of England’s (BoE) policymaker, which reinforced bets the bank could raise rates in November.

Near-Term GBP/USD Forecast: Greenback to Test Fresh Highs on Strong Payrolls Data

Looking ahead to this week, movement in the Pound to US Dollar exchange rate is likely to be dominated by the publication of the latest US non-farm payroll data.

The highly influential employment data could catapult the ‘Greenback’ to fresh highs if another healthy expansion of the US jobs market helps to cement expectations the Fed will raise rates again at its next meeting.

Back in the UK, a sparse economic calendar leaves Sterling without any clear domestic catalysts, leaving its performance largely dependent on broader currency trends.

Our currency coverage draws on live market data, official economic releases and published bank research.