Pound-to-Dollar Forecast: Can GBP/USD Break 1.35 as FTSE Hits Record Highs?

Modified: Monday, 5 January 2026 07:01 BST - Written by Tim Boyer

STORY LINK Pound-to-Dollar Forecast: Can GBP/USD Break 1.35 as FTSE Hits Record Highs?

After failing to break 1.3500 on Friday, the Pound to dollar exchange rate (GBP/USD) dipped steadily to lows near 1.3430 before a solid rebound to 1.3480 after the New York open as the dollar lost gains.

Crucial short-term resistance for the pair remains around 1.3530.

European and US markets re-opened following the New Year’s Day holiday, but trading volumes remained notably low.

The FTSE 100 index posted net gains with a brief move to record highs above 10,000 before correcting slightly with firm equities helping to underpin the Pound.

Trading activity will increase sharply next week. Danske Bank FX strategist Jens Naervig Pedersen commented; "Market liquidity should improve next week alongside a fuller data slate."

At this stage, markets are pricing in only a 15% chance of a Fed rate cut in January with traders seeing the chances of a March cut at close to 50%.

Traders will continue to monitor US data closely with a particular focus on the labour market and the latest jobs report is due on Friday.

Wider developments surrounding Federal Reserve policy and structural factors will also be a key factor.

Kyle Rodda, senior market analyst at Capital.com commented; "We have seen the peak in dollar supremacy. Even so, there has not been two consecutive years of decline in the dollar index for two decades.”

He does not expect a repeat of dollar losses this year; "I believe its demise has been overstated and that the relative strength of the U.S. economy will mean we see it bounce back this year.”

Goldman Sachs, however, expects a more dovish Fed policy will undermine the dollar; "We expect that concerns around central bank independence will extend into 2026, and see the upcoming change in Fed leadership as one of several reasons why risks around our Fed funds rate forecast skew dovish.”

Scotiabank added; “Last week’s FOMC minutes offered little to alter the overall narrative around the Fed, leaning dovishly toward further easing while flagging ongoing concerns about inflation.”

Earlier, the UK reported that there was a final December manufacturing PMI reading of 50.6 from the flash reading of 51.2, although this was confirmed at a 15-month high.

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics commented; "All told, we think the PMI paints a picture of stability within the manufacturing sector."

There are no major data releases due until the second half of January, but he bond market will be watched closely as a barometer of confidence in UK assets.

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TAGS: Pound Dollar Forecasts