Pound-to-Dollar Forecast: GBP/USD Near Breakout, But Risks Remain

Modified: Wednesday, 7 January 2026 11:01 BST - Written by Ben Hughes

STORY LINK Pound-to-Dollar Forecast: GBP/USD Near Breakout, But Risks Remain

The Pound to Dollar exchange rate (GBP/USD) climbed to three-month highs after rebounding from support in the low-1.34s, but the pair now faces stiff resistance as trading conditions thin and the dollar attempts to stabilise.

The next move will determine whether sterling can build momentum into the new year.

GBP/USD Forecasts: 3-Month Highs

The Pound to Dollar (GBP/USD) exchange rate found support below 1.3420 on Monday and rebounded strongly to above 1.3500 amid a firm Pound performance and dollar setback.

GBP/USD hit 3-month highs near 1.3570 before consolidation just below 1.3550 with markets still assessing whether there is scope for a decisive breakout.

According to UoB; “Although upward momentum has not increased significantly, GBP could rise to 1.3590. Currently, the odds of a continued rise above this level are not high.”

Scotiabank added; “Risk reversals are little changed, offering little in terms of sentiment-driven movement. We are neutral awaiting a break of the two-week range roughly bound between 1.34 and the mid1.35s.”

Overall risk appetite has held steady with the UK FTSE 100 index posting a fresh record high while there were further gains for precious metals and commodities.

The Pound will gain net support if risk appetite holds firm.

The dollar failed to gain sustained support from geo-political considerations, but there is a high degree of uncertainty over both Venezuela and the wider regional considerations.

ING is not convinced that there will be sustained dollar losses; “Despite the quick unwinding of safe-haven USD demand yesterday, we remain modestly biased to a stronger dollar in the near term. Seasonality is positive in January, and markets’ sanguine stance on geopolitics leaves risk assets and high-beta currencies exposed to re-escalations, both in Latam and potentially in Greenland.

Danske Bank also preached some caution; “Global markets generally performed well on Monday, but President Trump's threats against Colombia and Mexico, along with renewed talk of annexing Greenland, underscore that geopolitical tensions remain elevated as the new year begins.”

The US ISM manufacturing index edged lower to 47.9 for December from 48.2 previously. This was slightly below consensus forecasts and the sector has been in contraction territory for the last 8 months which hampered the dollar.

Capital Economics commented; "The modest decline in the ISM Manufacturing Index in December confirms that the sector was struggling for momentum around the turn of the year, but we doubt that this will be enough to prevent overall GDP from expanding at a solid pace in the coming quarters."

The dollar could gain some net support if the overall US economy holds firm, but the global perspective will also be important.

MUFG commented; “Evidence of strengthening global growth momentum is a supportive factor for our forecast for the US dollar to weaken further in 2026 even as US economic growth is expected to pick-up as well during the first half of this year driven by stimulus from President Trump’s One Big Beautiful Bill.”

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TAGS: Pound Dollar Forecasts