Pound to Dollar Forecast: GBP’s Long-Term Path Divided, Near-Term Risks High

Modified: Monday, 8 September 2025 08:30 BST - Written by Tim Boyer

STORY LINK Pound to Dollar Forecast: GBP’s Long-Term Path Divided, Near-Term Risks High

The near-term Pound to Dollar (GBP/USD) outlook is shaped by Fed pressure and UK fiscal concerns. Another weak US jobs report has reinforced expectations of a September rate cut, but Sterling remains capped by bond market jitters and political uncertainty.

MUFG forecasts GBP/USD climbing to 1.40 by mid-2026, while Credit Agricole sees the pair closer to 1.33, highlighting the split longer-term view.

GBP/USD Forecasts: Intense Fed pressure

MUFG forecasts that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.40 by the second quarter of 2026 on dollar losses.

Credit Agricole, however, expects GBP/USD to trade at 1.33 at the end of 2026 amid dollar resilience.

On a near-term view, Standard Chartered expects the pair to be rangebound between 1.3210-1.3590 as UK fiscal uncertainty triggers further volatility.

The dollar was hurt by another weaker-than-expected jobs report, and GBP/USD managed to secure net gains despite another wobble in the UK bond market.

The August US labour-market report recorded that the August increase in non-farm payrolls was held to 22,000 compared with consensus forecasts of around 75,000.

There was a further downward revision for June with the first contraction in payrolls since late 2020 while the unemployment rate edged higher to 4.3% from 4.2%.

Following the data, markets consider a September cut is a done deal with a 10% chance of a larger 50 basis-point rate cut.

Standard Chartered considers that the labour market is even weaker than reported; “our view is that the labour-market data that the Fed and markets focus on are highly misleading and understate the degree of slack. While it is not in freefall, we think the labour market is increasingly soft.”

Potential threats to Fed independence remain a key market factor as Trump attempts to fire Governor Cook.

Rabobank commented; “as Trump’s influence over the board grows, more policymakers may be inclined to prioritise the labour market and lower rates. Markets are growing increasingly worried that this may come at the cost of the inflation mandate.”

MUFG commented, “We revised down our forecasts for the USD to better reflect building downside risks from the Trump administration’s ongoing efforts to exert more influence on Fed policy. Even before the recent decision to fire Fed Governor Lisa Cook, President Trump’s influence over the Fed was already set to increase in the year ahead.”

Early in the week, the UK 30-year bond yield hit 27-year highs above 5.70% which triggered fresh fears surrounding fiscal sustainability.

Yields retreated later in the week, but the Labour government was embroiled in further controversy as Deputy Prime Minister Raynor was forced to resign and this triggered an extensive cabinet reshuffle.

According to Credit Agricole; “We conclude that a more meaningful recovery for the currency would require evidence that the UK economic outlook is starting to stabilise.

Deutsche Bank commented; “Taking a step back, UK bonds scan cheap on a cross-market basis, and UK term premium looks comparatively high. However, as we noted earlier this year, the cheapness of gilts on such metrics has generally persisted since the mini-budget of late 2022.”

It added; “Combined with the weakness around last year's budget - albeit far-less pronounced - suggests the currency market will be twice-bitten, twice-shy ahead of this year's Autumn event.”

According to HSBC; “Given the uncertainty, possible volatility and the risk of a negative market reaction at the Budget, investors are likely to approach the event with caution.

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TAGS: Pound Dollar Forecasts