Modified: Friday, 26 September 2025 10:30 BST

– Written by


Ben Hughes

STORY LINK Pound Sterling to Dollar Forecast: Fiscal Stress Keeps GBP Weak as USD Gains

The British Pound to Dollar exchange rate slid to three-week lows on Thursday, with GBP/USD dipping to 1.3375 as renewed gilt-market stress and firmer US data drove fresh selling.

Disappointing bond auctions pushed UK yields higher, amplifying fiscal worries, while Danske Bank warned that underappreciated inflation could trigger a recalibration of Fed cut expectations and a short-term dollar rebound.

UBS, however, still sees scope for GBP/USD to recover to 1.39 by year-end.

GBP/USD Forecasts: Slides to 3-Week Lows

The dollar has secured limited net gains in global markets while the Pound has been unable to gain any traction in global markets.

The dollar also gained fresh support from the latest US data releases.

Danske Bank commented; “We see near-term risks skewed to the upside for the US growth momentum, with inflationary pressures in particular underappreciated.”

It added; “A shift in the market focus from labour data to inflation could prompt a recalibration of Fed cut expectations and potentially spark a short-term USD rebound.”

With fresh reservations over the UK bond market and weaker equities, the Pound to Dollar (GBP/USD) exchange rate has retreated to below 1.3400 with 3-week lows around 1.3375.

UoB commented; “Downward momentum received a boost, and this could lead to a decline toward 1.3365.” It also sees the risk of 1.3270.

Scotiabank still considers the near-term outlook is neutral; “We continue to see a broad, flat range centred around 1.35 and continue to highlight the importance of the 50 day MA at 1.3471.”

UBS is still backing a year-end GBP/USD target of 1.39.

Scotiabank is uneasy over the tone surrounding risk; “Markets are perhaps looking a little complacent against the backdrop of high equity valuations, elevated geo-political risks and uncertainty over the pace of Fed easing.”

Marekt attention is never far from the UK bond market given underlying fears over a doom loop of rising yields and a weaker currency.

The UK 10-year gilt yield has increased to 3-week highs at 4.75% from 4.68% amid another disappointing bond auction with markets again fretting over the UK debt dynamics. Higher US yields also pushed UK yields higher.

Scotiabank commented; “The UK’s government bond market is once again in focus, given this week’s disappointing auctions that suggested weak demand. Markets remain concerned about the UK’s fiscal situation and are tightly focused on developments heading into the Autumn (budget) Statement on November 26.”

Political developments will also be watched closely with fresh speculation over a challenge to Prime Minister Starmer.

In this environment, there will be strong pressure for the government to avoid talk of tax rises and controls on welfare spending.

Scotiabank added; “Near-term risk lies with Chancellor Reeves’ public appearance at the Labour Party conference next week.”

US second-quarter GDP was revised higher to an annualised 3.8% in the final reading from 3.3% while initial jobless claims declined to 218,000 from 232,000 previously.

The data provided no evidence of a weaker economy and markets were slightly less confident that there would be a further rate cut in October.

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John’s new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts