Pound to Dollar Forecast: "Sell America" Risks Test GBP/USD Near 1.35

Modified: Wednesday, 21 January 2026 08:31 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: "Sell America" Risks Test GBP/USD Near 1.35

The Pound to Dollar exchange rate (GBP/USD) has edged closer to 1.35 as renewed dollar weakness offsets a softer risk backdrop, with markets increasingly focused on US political risks rather than UK fundamentals.

GBP/USD Forecasts: Trump Agenda Dominates

The Pound to Dollar (GBP/USD) exchange rate held above 1.3400 in Asia on Tuesday and has advanced to highs just below 1.3500 amid dollar losses. Major GBP/USD resistance levels come in above 1.3550.

Risk conditions are likely to dominate and a key issue will be whether the dollar can gain defensive support or whether there is a renewed sell-off in the currency amid fears over the US outlook. If equities continue to slide, it will be tough for the Pound to make headway.

The key issues are likely to be intense uncertainty and higher volatility with a focus on rhetoric at the Davos gathering.

RBC Capital Markets has a year-end GBP/USD target of 1.36 and added; “while some cable downside risks can be priced out of 2026, new uncertainties may emerge.”

Geo-political developments have dominated with further concerns over the US threat of tariffs on eight European countries if there is no deal on Greenland.

The dollar has been hurt by renewed talk of a sell America mentality, especially with the risk of retaliation from Europe. Overall risk appetite, however, has dipped again with sharp losses for equities.

Adding to the sense of unease has been a highly critical post from Trump calling the UK deal on the Chagos Islands as an act of great stupidity.

Markets are also still having to deal with uncertainty surrounding Federal Reserve independence.

According to MUFG; “The trade uncertainty, Fed independence threats, and Trump’s approach to geopolitics generally are all factors that could result in a sudden pick up in appetite for reducing US dollar exposures. The cost involved in that should also cheapen if we see the Fed deliver further rate cuts this year.”

ING notes that US assets are still performing well and added; “until the performance outlook for those assets significantly shifts, we are unlikely to see a significant exodus of European capital from the US.”

It added; “That said, we are a little negative on the dollar this year for macro reasons. But a 10% sell-off akin to last April's 'sell America' theme looks unlikely.”

As far as data is concerned, the UK unemployment rate held at 5.1% in the three months to November, matching the 4-year high, and in line with consensus forecasts.

The ONS reported a 33,000 decline in payrolls for November with a provisional decline of 43,000 for December.

Headline average earnings growth slowed to 4.7% from 4.8% with underlying growth at 4.5% from 4.6% previously and in line with expectations.

There was no shift in Bank of England expectations with markets not expecting a February cut.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts