Pound to Dollar Week Ahead Forecast: GBP/USD Vulnerable

Modified: Monday, 12 January 2026 09:01 BST - Written by Tim Boyer

STORY LINK Pound to Dollar Week Ahead Forecast: GBP/USD Vulnerable

The Pound to Dollar exchange rate has retreated back towards the 1.34 area after failing to hold 12-week highs, as renewed dollar strength outweighed limited support for Sterling.

With markets increasingly confident that the Federal Reserve will not cut rates in January, near-term GBP/USD direction remains dominated by US data, Fed policy expectations and political developments in Washington.

GBP/USD Forecasts: Dollar dominates

MUFG expects the Pound to Dollar (GBP/USD) exchange rate will make limited headway to 1.38 by the end of 2026 amid a soft dollar.

UBS has an end-year GBP/USD forecast of 1.35.

GBP/USD briefly hit 12-week highs above 1.3560 early in the week before surrendering ground, primarily due to a stronger dollar in global markets and tested the 1.3400 support area.

There were no major domestic developments with markets waiting for evidence on the UK growth performance and outlook.

The US currency gained some support from on-going geo-political concerns following the US move to oust Venezuelan President Maduro.

The latest US jobs data recorded an increase in non-farm payrolls of 50,000 for December, slightly below consensus forecasts of 65,000 and followed a revised 56,000 gain for November.

The unemployment rate declined to 4.4% from 4.6% previously and below expectations of 4.5%.

The data was mixed, but markets were even more confident that the Fed would not cut rates at the January meeting with around a 30% chance of a March move.

MUFG commented; “Our base case is for the Fed to pause in January and restart cuts in March. The overall pace is unclear, but we feel confident weaker macro conditions and/or the Fed chair leadership will usher in even lower interest rates.”

The subject of the next Fed Chair will remain an important issue.

According to Scotiabank; “The search for the next Fed Chair remains a major risk for the USD and the race appears to be far from over. A decision may be delivered as soon as the end of the month, and the market reaction to the decision will be dependent on the nominee’s perceived independence from the White House.

The bank noted; “Certain candidates have the potential to deliver an outsized (likely downward) move in the USD in the next few weeks, offering the risk of a shock in an otherwise quiet, low volatility market.”

It added; “Among the two primary candidates, Hassett remains a strong contender, being close to the White House and a strong advocate of the president’s economic agenda. Given that, his selection risks unsettling Treasurys and the USD. Warsh would bring more Wall St nous and credibility but also has an independent mind which may not suit the White House.”

UK monetary and fiscal policies will inevitably have an important role to play.

UBS expects the Bank of England will have to tread carefully; “Base effects should weigh on inflation, but we also expect inflation to fall more broadly, albeit only gradually. This should leave scope for elevated policy rates and the potential for successful GBP carry trades in the short term.”

It added; “Over time, carry should fade, and political and fiscal risks are likely to flare up again (May local elections, the next Autumn Budget). This is likely to leave the GBP in a tricky spot. We expect a consolidation of GBPUSD around 1.36.”

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TAGS: Pound Dollar Forecasts