Modified: Thursday, 22 January 2026 08:46 BST

– Written by


Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: Is the Calm Temporary?

The Pound to Dollar exchange rate (GBP/USD) regained some composure after renewed equity market losses briefly dragged the pair back to key support levels.

GBP/USD Forecast: Recovery from Test of 1.34 Support

After a calmer start, there were fresh losses in equities which hampered the Pound with the Pound to Dollar (GBP/USD) exchange rate dipping to re-test the 1.3400 level before a recovery to 1.3430 as the dollar lost ground.

According to UoB, there is scope for gains to 1.3505, but added; “On the downside, a breach of 1.3380 could indicate that GBP is likely to range-trade instead of trading with an upward bias.”

HSBC has an end-year GBP/USD forecast of 1.35.

There was no major impact from the latest UK inflation data with geo-political developments dominating domestic and global markets. Events in Davos will continue to be monitored very closely.

Macquarie Group global forex and rates strategist Thierry Wizman commented; “The next step in the ‘Greenland or Bust’ saga is to see whether a common ground, such as NATO joint administration of Greenland, can be reached, starting at Davos this week.”

He added; “Until that happens the so-called primacy of the U.S. remains at risk of further dissolution, and with it an upending of the geopolitical alignments that have upheld markets in recent years.”

As far as financial markets are concerned, the developments in bond markets will be a key element.

Upward pressure on bond yields unsettled the dollar on Tuesday and had a knock-on effect on the Pound as UK bond yields also moved higher.

According to ING; “Greenland will be the dominant theme today and there may be scope for de-escalation, offering the dollar some support. Trump is meeting EU leaders in Davos today, and if the past year has shown anything, it’s that face‑to‑face engagement tends to provide the best opportunity for tensions with the US president to ease.”

MUFG noted; “The news yesterday that the Danish pension fund Akademikerpension was exiting the US Treasury market certainly added to the speculation of further foreign investor selling.”

It notes that this is not a sum which would destabilise the markets.

Nevertheless, it added; “But another announcement like the Danish one can certainly reinforce the negative momentum and feed the speculation of a broader sell-off of US assets. Investors sense that the taking of Greenland could be a step too far and warrants a more serious flight of capital from the US than what took place in April last year. The selling then was fleeting.”

Rabobank commented on the potential lack of alternatives; “The question remains, however; if we see mass dumping from European institutions, where do the dollars go?”

Domestically, the headline UK inflation rate increased to 3.4% from 3.2% and marginally above consensus forecasts of 3.3% with the core rate held at 3.2%.

Markets continued to price in around a 20% chance of a Bank of England rate cut at the March meeting.

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TAGS: Pound Dollar Forecasts