Pound-to-Dollar Forecast: Will GBP/USD Rally on FED This Week?

Modified: Monday, 8 December 2025 07:01 BST - Written by Tim Boyer

STORY LINK Pound-to-Dollar Forecast: Will GBP/USD Rally on FED This Week?

The Pound to Dollar exchange rate (GBP/USD) stalled above 1.3350 after a strong run, with both the Fed and BoE poised to cut rates this month.

Long-term forecasts diverge sharply, with some banks expecting gains toward 1.45 while others see a slide back to 1.30 by 2026.

Direction now hinges on how aggressively the Fed eases next year and whether a new Chair injects political risk into US policy.

GBP/USD Forecasts: Rate cuts imminent

Credit Agricole forecasts that GBP/USD will retreat to 1.30 by the end of 2026, although it does see gains to 1.40 by the end of the following year.

In contrast, Bank of America forecasts that GBP/USD will strengthen to 1.45 at the end of 2026.

According to Bank of America; In reality, markets have been reluctant to price in good news, preferring to trade bearish GBP news into the budget.

GBP/USD posted net gains to 5-week highs above 1.3350 before stalling.

Federal Reserve policy will be a key element for currency markets. Traders are pricing around 86% odds of Fed cut this week, and potentially 2-3 more reductions next year.

There will also be a new Fed Chair from May which could trigger a notable shift in direction.

There has been increased speculation that President Trump will nominate Director of the National Economic Council Kevin Hassett to be the next Chair.

Such an appointment would increase concerns over increased political influence.

ING also noted potential risks to the US currency; “We are mildly bearish on the dollar into 2026 as the Fed brings the policy rate down to neutral. We see risks skewed to the dollar’s downside should a more politically minded Fed take US real rates a lot lower or even be dragged into a scheme to target longer-dated Treasury yields.”

Danske Bank has adjusted its forecast; “We expect the Fed to cut rates by 25bp in December, March and June (prev. January, April and July), and then maintain the terminal rate of 3.00-3.25% through the rest of 2026 and 2027.”

It noted a high degree of uncertainty; “Sudden slowdown in private consumption could tilt the Fed towards resuming more aggressive rate cuts, but the persistent fiscal easing could also force the Fed to maintain rates at a structurally higher level than we assume.”

Credit Agricole, however, expects no cuts in 2026; “Policy uncertainty to fade and dovish Fed market expectations to be put to the test by a resilient US economy and sticky inflation that would further render any fiscal dominance attempts costlier for the Trump administration ahead of the all-important US mid-term elections.”

There are also strong expectations that the Bank of England will cut rates in December while 2026 policy decisions will be a key element.

Barclays commented; “The BoE is expected to slow the pace of policy easing in 2026, this is contingent on inflation remaining contained and the labour market staying stable”

The bank did add; “some slack is starting to appear in the labour market. Should the unemployment rate surpass 5%, the central bank may ease more aggressively in a bid to support real disposable income and consumption.”

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TAGS: Pound Dollar Forecasts