GBP/USD Forecast: Pound Sterling Edges Higher as USD Headwinds Mount

Modified: Tuesday, 27 January 2026 21:01 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Edges Higher as USD Headwinds Mount

The Pound to US Dollar exchange rate (GBP/USD) hovered near a four-month peak on Tuesday, supported by ongoing weakness in the US Dollar, although a lack of fresh data kept volatility contained.

At the time of writing, GBP/USD was trading at $1.3701, moving sideways just shy of the previous session’s four-month high.

The US Dollar (USD) remained under pressure, extending recent losses after a heavy selloff earlier in the week dragged the currency to multi-month lows.

Sentiment towards the Greenback has deteriorated amid growing unease over both foreign policy and domestic political strains. While President Donald Trump stepped back from threatening new tariffs on Europe, markets were unsettled by fresh warnings aimed at Canada, with Trump suggesting 100% tariffs could be imposed if Ottawa pursues a trade agreement with China.

At home, the mood darkened further following public outrage over the second fatal shooting of a US citizen by immigration agents in Minneapolis. The incident reignited fears of political gridlock, with some Democrats withdrawing support for funding the Department of Homeland Security, raising the prospect of another government shutdown.

With tensions simmering on multiple fronts, investors have grown increasingly cautious about holding US Dollar exposure. Although USD briefly stabilised after Trump attempted to cool the situation in Minneapolis, the currency struggled to attract sustained buying interest.

The Pound (GBP), meanwhile, found it difficult to extend gains, with a quiet UK data calendar leaving Sterling short of clear direction.

Political developments also weighed on sentiment. Reports of renewed friction within the governing Labour Party surfaced after allies of Prime Minister Keir Starmer moved to block Andy Burnham from standing in a forthcoming by-election. The move fuelled speculation it was designed to head off a potential leadership challenge, adding another layer of uncertainty that appeared to cap demand for the Pound.

GBP/USD Forecast: Fed Leadership Decision Looms

Looking ahead, markets are bracing for an announcement from President Donald Trump on his preferred candidate to succeed Jerome Powell as Chair of the Federal Reserve, with the nomination expected before the end of the month.

Given Trump’s repeated criticism of Powell’s policy stance, investors anticipate a more dovish nominee when Powell’s term expires in May. Such an outcome could undermine confidence in the US Dollar and place USD under renewed pressure.

With little in the way of UK economic data scheduled, movement in the Pound is likely to remain closely tied to shifts in global risk appetite and developments surrounding US monetary policy.

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