Pound to Dollar Forecast RAISED to 1.30 by Q2 2026

July 7, 2025 - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast RAISED to 1.30 by Q2 2026

HSBC has raised its Q2 2026 Pound to Dollar (GBP/USD) exchange rate forecast from 1.30 but still expects a slight net loss to 1.35.

CIBC expects net GBP/USD gains to 1.42 by the end of next year.

After hitting fresh 44-month highs near 1.3800, GBP/USD corrected sharply to below 1.36 as the dollar rallied and the Pound was hit by a fresh bout of budget jitters.

Fiscal policy could be crucial for the Pound and dollar over the next few months with UK and US bond markets both facing very substantial medium-term doubts over fiscal credibility.

The UK government only managed to win the House of Commons vote on welfare payments by making further concessions to Labour MPs which heavily diluted any projected savings.

After a limited initial impact, there was sharp selling in gilts and the Pound amid speculation that Chancellor Reeves would be replaced.

Strong backing from Prime Minister Starmer allowed a partial Pound recovery.


ING commented; “Clearly, the UK has some significant fiscal challenges which will come to the fore ahead of November's budget. Were the government to cave into the left wing of the party again, investors would rightly think that power had ebbed away from the Starmer-Reeves axis, and gilts would be under more pressure.”

At this stage, it has an end-2026 GBP/USD forecast of 1.33.

Commerzbank considers the threat is serious; “It is irrelevant whether Reeves can continue, or whether and, if so, who Stamer will choose as her successor - the damage to the pound and long-term interest rates has been done."

The US Congress has approved the latest Budget Bill with an extension of tax cuts, higher spending on defence and immigration control, offset by some cuts to healthcare support. Trump has also signed the Bill into law

The Congressional Budget Office (CBO) has forecast that the budget will add $3.3trn to the deficit over 10 years.

Commerzbank's FX analyst Volkmar Baur commented; "The US Dollar (USD) may benefit from the passage of the law in the short term. Ultimately, it should provide a fiscal stimulus to growth, which should support the currency. In the long term, however, the bill only adds to our concerns about the status of the US dollar.”

There are still important concerns that Fed independence will be compromised as Trump and Treasury Secretary Bessent continue to push strongly for aggressive interest rate cuts.


The Administration will also want to keep bond yields down to cap debt servicing costs.

In this context, there are also persistent fears that Trump will look to dismiss Powell and appoint a puppet Fed Chair.

Bank of England independence has not been threatened. CIBC expects steady Bank of England interest rate cuts; “We anticipate another 25bps adjustment in August, ahead of further moves in November and February.

It still expects GBP/USD buying on dips.

The immediate focus is likely to be on trade with announcements due on tariffs in the week ahead.

CIBC expects summer volatility; “Fed officials expect the summer months to begin to show tariff impacts more materially, which suggests that once again this summer may not see volatility stay as subdued as in years past.”

It added; “we have had little change to our view of a continued steady depreciation in the broad USD. We expect that the next shoe to drop could be a material weakening in US economic data, which could have the USD continuing lower.”

HSBC remains wary over US fundamentals; “We are sceptical in thinking that it will be calmer going forward when many trade discussions are ongoing and deals are light in detail. Furthermore, there could be another source of uncertainty stemming from US fiscal policy.”

The bank does see limits to dollar losses; “We believe the departure from the USD will continue. However, the queue may be too long for this to happen quickly given the costs.”

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TAGS: Pound Dollar Forecasts