Pound Sterling to Dollar Forecast: GBP Slides, USD Strength Puts Rally at Risk

Modified: Friday, 16 January 2026 11:31 BST - Written by Tim Boyer

STORY LINK Pound Sterling to Dollar Forecast: GBP Slides, USD Strength Puts Rally at Risk

The Pound to Dollar exchange rate (GBP/USD) slipped to four-week lows on Thursday as resilient US economic data underpinned demand for the greenback and outweighed support from stronger-than-expected UK GDP figures.

GBP/USD Forecasts: Dip to 4-Week Lows

The Pound to Dollar (GBP/USD) exchange rate was unable to gain any traction from the stronger than expected UK GDP data and dipped below the 1.3400 level after the US open and dipped to 4-week lows around 1.3370.

The dollar overall made net gains amid on-going evidence of solid US data.

UoB and Scotiabank have both warned over the dangers of dipping below 1.34.

According to CitiGroup; “A close below the 1.34 area would see a break of the 200dma but also the first lower low in this uptrend - yet another technical signal pointing to an exhaustion in the rally and potentially a tactical trend change.”

It added; “This would then open the way towards the channel base around 1.29.”

As far as US data is concerned, initial jobless claims declined to 198,000 in the latest week from a revised 207,000 previously and again below consensus forecasts.

The New York Empire manufacturing index improved to 7.7 for January from -3.7 previously. Employment declined on the month while upward pressure on prices eased slightly.

The Philadelphia Fed manufacturing index also strengthened to 12.6 from -8.8 in December.

According to ING; “last night's release of the Fed's Beige Book suggests the central bank will be in no hurry to cut. Activity was flat to higher in eight of the 12 Fed districts, and there was no sign of any deterioration in the labour markets.”

It added; “Having pushed expectations of Fed policy easing this year back to a cut in June and then December, the next move in the rates market could be to price out the second Fed rate cut this year – a dollar positive.”

MUFG expects there will be a significant impact from energy prices. Overnight, crude oil declined as there was no US attack on Iran.

According to the bank; “Our expectation is that the lower price of oil supports our forecast for a weaker US dollar which became more positively correlated to the price of oil last year.

It did add; “The US dollar could prove stronger than we expect if there is a significant oil price spike.”

Earlier, the UK reported GDP growth of 0.3% for November after a 0.1% decline the previous month and compared with expectations of 0.1% growth.

There was a rebound in manufacturing output, but with a further dip in construction output.

Kallum Pickering, chief economist at Peel Hunt commented; “Despite the upside surprise, it is important to note that the data are by no means strong.”

He added; “Economic activity in the UK is, at best, lukewarm, lumpy and remains constrained mostly by a lack of confidence in the policy decisions of the Labour government.”

He expects that there will be more Bank of England rate cuts than currently priced in.

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TAGS: Pound Dollar Forecasts