Pound Sterling to Dollar Forecast: Political Turmoil Lifts USD, GBP Tests 1.34

Modified: Tuesday, 7 October 2025 08:30 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: Political Turmoil Lifts USD, GBP Tests 1.34

The Pound Sterling fell against the Dollar early Monday, touching lows near 1.3420 before stabilising around 1.3440, as political shocks in France and Japan lifted safe-haven demand for the greenback.

GBP/USD Forecasts: Hold Above 1.3400

The Pound to Dollar (GBP/USD) exchange rate dipped to lows below 1.3420 in early Europe on Monday on dollar strength before recovering to 1.3440.

Immediate GBP/USD support is near 1.3400 with tough resistance close to 1.3520.

UoB commented; “GBP gapped lower at the open today, and it may continue to decline toward 1.3400. Based on the current momentum, a clear break below this level appears unlikely. On the upside, any recovery is likely to hold below 1.3475.”

Politics will remain crucial in the short term, especially with disruptions to US data releases.

The dollar drew support on Monday from global political shocks. Following Takaichi’s victory in the LDP leadership contest, she is expected to be sworn in as Prime Minister within the next two weeks.

There are expectations that she will be much more dovish on economic policy and resist Bank of Japan tightening. In response, the yen slumped close to 2% before stabilising.

The Euro was also damaged by the shock resignation of French Prime Minister Lecornu after less than four weeks in office.

The dollar drew net support from these concerns, but there was still a high degree of uncertainty, especially with gold and bitcoin hitting fresh record highs while equities posted net gains.

There has been no end to the US government shutdown with negotiators failing to reach any bipartisan deal, but the dollar has been resilient.

Scotiabank commented; “The broader market’s tone is holding in remarkably well, as the US government shutdown extends into a second week. US equity futures appear well supported near record highs and US Treasury yields have gapped higher while still remaining within their prior range.”

According to ING; “In general, the longer the US government shutdown continues, the more the dollar can face some pressure. But we must also acknowledge that the dollar has shown decent resilience so far, confirming our perception that markets have considerably raised the bar for how bad US news needs to be to build more USD shorts.”

Markets were continuing to monitor UK bond yields closely, especially given the wider economic impact.

The 10-year gilt yield increased to 4.74% from 4.70% and close to September highs while the 30-year yield held near 5.56%.

There are further concerns that higher yields will undermine activity and risk a negative feedback loop for the Pound.

In this context, markets are also wary over on-going bond sales by the Bank of England given fears that this is exacerbating upward pressure on yields.

RBC BlueBay Asset Management fixed income CIO Mark Dowding commented; "Many investors including ourselves have been saying to the Bank of England you’re making the problem worse, not better. Stop doing this."

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TAGS: Pound Dollar Forecasts