– Written by


James Fuller

STORY LINK Pound Sterling to Dollar Forecast: GBP Holds Near 1.34 as Bond Yields Surge

The Pound to Dollar exchange rate (GBP/USD) remained anchored around the 1.3400 level as rising UK and US bond yields continued to dominate currency markets. Despite softer-than-expected UK inflation data, Sterling held firm as traders maintained expectations for further Bank of England tightening later this year.

Meanwhile, elevated US Treasury yields and growing concerns over persistent inflation have provided fresh support for the US Dollar, limiting GBP/USD upside despite the Pound’s recent resilience.

GBP/USD Forecasts: Holding Around 1.34

The Pound to Dollar (GBP/USD) exchange rate has consolidated around 1.3400 with relatively narrow ranges in force despite major underlying tensions.

According to UoB; “The price movements still appear to be part of a range-trading phase. Today, we expect GBP to trade between 1.3365 and 1.3435.”

CIBC has an end-June GBP/USD forecast of 1.34 before an increase to 1.37 by the end of 2026.

The Pound was again broadly resilient despite lower than expected UK inflation data for April with markets still pricing in two Bank of England rate hikes this year.

The headline UK inflation rate declined more than expected to 2.8% from 3.3% previously with a core rate at 2.5% from 3.1%. The drop was triggered primarily by the cut in energy prices for April, but these will reverse in August with investment banks expecting the headline rate to increase to around 4.0%.

The dollar has gained net support from higher yields this month and a key factor will be whether the trend continues.

The substantial increase in US bond yields remained a key element with the 10-year yield around 4.66%. There have been increased concerns over US inflation trends and the risk that the Federal Reserve will have to increase interest rates.

Fed minutes from the late-April meeting will be released on Wednesday. Danske Bank commented; “Markets are looking for further forward-looking views after the divided rate decision.”

ING commented on the sell-off in bonds; “It’s worth reiterating that, unlike in 2025, this sell-off is being driven by inflation concerns rather than fiscal fears, making it unambiguously USD positive.”

The bank added; “As a result, upside risks to USD remain dominant unless genuinely constructive news emerges from the Gulf. Reports yesterday that NATO is considering intervention in the Strait of Hormuz to support vessel passage failed to lift risk assets in any meaningful way.”

MUFG also commented on the relationship between bonds and the dollar; “For much of the time after that initial gain, the dollar has underperformed expectations given the jump in crude oil prices. A muted move in US yields partially explained that (along with strong equity market performances) and last week the 2-year yield in the US increased for the fourth consecutive week and by close to 20bps.

It added; “This is now having a more notable FX influence with expectations of Fed rate hikes increasing. A rate hike by January next year is now 85% priced and this increased conviction is providing the dollar with increased support. We see scope for the dollar to advance further over the short-term.”

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• The US dollar initially fell against the Japanese yen during the trading session on Wednesday but then turned around to show signs of strength yet again.

• After all it does make a certain amount of sense that the overall trend remains the same as it has been for a while and I think it also makes a certain amount of sense that simple momentum just gets you to the upside.

If traders are going to continue to look at this as an interest rate play, then I think holding to the long side makes the most sense. The 50-day EMA sits just above the 158-yen level and of course the 158-yen level has been very important in both a support and resistance stance when it comes to this pair.

A Potential Bullish Move

If we can stay above there then it is likely that we can continue to see the USD/JPY market open up a potential bullish move towards the crucial 160-yen level but keep in mind that the 160-yen level is basically where the Bank of Japan decided it was time to intervene. It’s not necessarily that they will again it’s just that they could.

Because of this I am somewhat cautious and getting overly aggressive but buying dips and simply waiting for value to present itself in that dip makes quite a bit of sense. If we were to break down below the 158-yen level, then it could open up a drop down to the 157-yen level.

But with that being the case I think that would probably only invite more buying. The 156-yen level is backed up by the 200-day EMA. I think that is the bottom of this trend. I think you will continue to see this market look bullish. But if we did break down below the 200-day EMA I obviously would have to.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire