Modified: Tuesday, 25 August 2026 18:31 BST

– Written by


David Woodsmith

STORY LINK GBP/USD Forecast: Pound Eyes 1.37 as Dollar Risks Mount

The Pound to Dollar (GBP/USD) exchange rate maintained a firm tone on Tuesday, trading around 1.3630-1.3640 and holding close to Friday’s six-month high above 1.3670.

Pound Sterling has struggled to extend its advance, but the Dollar remains under pressure amid persistent concerns over US fiscal policy, trade tensions and the credibility of recent Treasury intervention in the bond market.

GBP/USD reached 1.3675 at the end of last week before correcting modestly, with the pair retaining a generally bullish technical tone.

On a short-term view, UoB sees scope for GBP/USD gains towards 1.3700, but added; “On the downside, if GBP breaks below 1.3585 it would mean that 1.3700 is out of reach.”

Scotiabank maintains a positive outlook on the Pound; “Underlying trend dynamics remain solidly bullish and, after a period of range trading and two tests of 1.3150, a sustained push above 1.3650/60 implies potential for an extension towards the 1.41 zone over the balance of the year.”

Canada Trade War Adds to Dollar Risks

US policy developments remain a dominant influence on currency markets this week.

Trade tensions with Canada have intensified sharply following the collapse of negotiations.

Canada announced retaliatory tariffs on around $20bn of US goods on Tuesday, matching recent US tariffs dollar-for-dollar.

The measures cover hundreds of products and are due to take effect in September.

President Trump has also threatened to impose 50% tariffs on Canadian cars, trucks and automotive parts from January 2027, increasing concerns over disruption to highly integrated North American supply chains.

ING had commented; “With a new chapter in the US-Canada trade war opening up over the weekend, the question will be to what degree the new sanctions on Iran threaten US trade ties with China again.”

The bank added that a significant re-escalation in the tariff conflict would probably be negative for the Dollar.

Iran Sanctions Produce Limited Dollar Support

US Treasury Secretary Scott Bessent also announced an expansion of sanctions against Iran on Monday.

The measures are intended to restrict Iran’s access to the global financial system and target economic activity supporting Tehran.

However, Washington stopped short of immediately applying the most severe measures against China, Iran’s largest energy customer, reducing fears of an abrupt escalation in US-China tensions.

The announcement produced only limited support for the Dollar.

Markets remain cautious over whether sanctions will materially alter Iran’s behaviour or instead increase geopolitical and energy-market risks.

US Fiscal Policy Remains under Scrutiny

Fiscal policy is also attracting increasing attention following last week’s Treasury intervention in the bond market.

The Treasury doubled the size of buybacks of longer-dated government securities after the 30-year yield climbed to its highest level since 2007.

Bessent said on Monday that regularly scheduled Treasury auctions would continue despite the larger buyback programme.

The strategy remains controversial.

Billionaire investor Stanley Druckenmiller criticised the intervention this week, arguing that Treasury bond buying risks undermining the credibility of the world’s largest government debt market.

Concerns have also intensified after total US government debt surpassed $40trn.

MUFG commented; “We await US Treasury Secretary Scott Bessent’s details on addressing concerns over the fiscal outlook in the US but we along with market participants are very sceptical of anything meaningful coming from an announcement.”

It added; “A failure to cap yields would be viewed as a policy misstep that would undermine investor confidence and hurt the dollar while steps to cap yields would also likely undermine the dollar.”

This potentially leaves the Dollar in a difficult position.

A renewed surge in long-term yields could revive concerns over US debt sustainability, while more aggressive Treasury intervention could encourage investors to reduce exposure to the currency.

GBP/USD Forecast: Jackson Hole Could Decide the Next Break

Fed Chair Kevin Warsh’s Jackson Hole speech later this week is likely to become the next major test for GBP/USD.

The Federal Reserve remains caught between inflation that is still above target and a recent run of softer US employment, retail sales and inflation data.

Warsh will also be speaking against an increasingly sensitive political backdrop following Treasury efforts to contain long-term borrowing costs.

A hawkish speech could push Treasury yields higher and offer the Dollar some support, although another aggressive bond sell-off could revive broader concerns over US fiscal stability.

Conversely, a softer message would reinforce expectations that the Fed will leave rates unchanged in September and could push GBP/USD back towards 1.3675 and 1.3700.

A sustained break above 1.3700 would strengthen the bullish technical picture and bring the 1.3800 area into focus.

Initial support is located around 1.3585-1.3600, with a break below this region likely to undermine the current upward bias.

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TAGS: Pound Dollar Forecasts