Pound to Dollar Week Rate Ahead Outlook: 1.40 Optimism

Modified: Monday, 6 October 2025 13:57 BST - Written by James Fuller

STORY LINK Pound to Dollar Week Rate Ahead Outlook: 1.40 Optimism

Forecasts for the Pound to Dollar exchange rate (GBP/USD) remain divided as analysts weigh fiscal and political risks. MUFG sees scope for gains to 1.40 by late 2026, while Rabobank expects 12-month advances capped at 1.35 amid dual US-UK vulnerabilities.

GBP/USD: Q4 volatility

MUFG forecasts that The Pound to Dollar (GBP/USD) can strengthen to 1.40 by the third quarter of 2026 as dollar losses outpace Pound vulnerability.

Rabobank is also uneasy over US and UK fundamentals and expects 12-month GBP/USD gains will be held to 1.35.

GBP/USD secured a limited net gain to 1.3480 during the week but failed to hold above 1.3500.

The US government shutdown dampened activity with no employment report, but equity markets posted gains with the FTSE 100 index at fresh record highs which provided some Pound support.

Given the political and economic uncertainties as well as frothy equity markets, volatility is set to intensify during the fourth quarter.

MUFG expressed reservations over the UK economy and the forthcoming November budget; “The constant media reports of tax hikes to come is weighing on sentiment and likely deterring business and household decision-making. The advance PMI data in September certainly pointed to a notable slowdown that could extend further into the budget and possibly beyond.”

It added; “Whatever the outcome, key for the GBP will be that steps are credible with headroom in order to protect against another unforeseen rise in yields.”

Rabobank is also uneasy over UK fundamentals; “Although there are plenty of calls from UK businesses that tax hikes should be balanced with spending cuts, there are concerns that the government will not be able to push much spending restraint into law. We expect GBP to remain vulnerable into November and beyond.”

Morgan Stanley considers that fears are overdone with the budget likely to be less bad than feared with tax increases spread across sectors.

As far as the US is concerned, markets are very confident that the Federal Reserve will cut interest rates again in October and December.

MUFG is uneasy over the threat of increased political influence on the Fed; “The danger is that inflation remains sticky and in the meantime the Fed continues to cut. Market expectations of cuts in 2026 could then be influenced by Trump’s attempts to influence the Fed board and the selection of say Kevin Hassett would certainly result in increased investor concerns over long-term price stability.”

MUFG notes the risk of aggressive monetary easing and expects that fiscal fears will continue.

The bank summarised; “These factors will likely see the US dollar remain under downward pressure.”

HSBC expressed some caution over forecasting further dollar losses; “there are signs that the USD weakening may be due a pause. True, factors such as continued concerns over Fed independence and the still buoyant risk appetite point to further USD downside, but this could be offset by cyclical upside risks given the market is already priced more dovishly than recent Fed rhetoric would seem to justify.”

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TAGS: Pound Dollar Forecasts