Pound Sterling to Dollar Forecast: GBP Jumps, Fed Independence Fears Hit USD

Modified: Tuesday, 3 February 2026 09:16 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Jumps, Fed Independence Fears Hit USD

The Pound to Dollar exchange rate (GBP/USD) has seen a dramatic surge in volatility after racing to four-year highs above 1.38 before pulling back sharply as the US dollar attempted to stabilise.

Conflicting signals over US currency policy, Federal Reserve independence and the nomination of Kevin Warsh as the next Fed Chair have left markets sharply divided on whether GBP/USD is heading for 1.40 or a deeper correction.

GBP/USD Forecasts: Near 1.37 Amid Dollar Rebound

There was a very sharp correction in global markets on Friday and aftershocks have continued on Monday amid a shift in dollar expectations. Precious metals plunged with silver collapsing over 40% following the surge over the past few weeks while gold also posted sharp losses.

On the other side of the equation, there was a solid dollar rebound with the Pound caught in the middle. The Pound to Dollar (GBP/USD) exchange rate dipped sharply to lows at 1.3665 before trading close to 1.3700.

According to UoB; “While reaching oversold levels, the weakness has not stabilised. Today, we expect GBP to dip below 1.3640.

Nevertheless, it added; “Given the oversold conditions, a sustained drop below this level is unlikely.”

US data will continue to be watched closely during the week with a notable focus on the jobs market.

Consensus forecasts are for an increase in non-farm payrolls of around 65,000 after a 50,000 gain the previous month with the unemployment rate holding at 4.4%.

The data will have a significant impact on interest rate expectations At this stage, markets are pricing in just under a 15% chance of a March rate cut. Strong data this week would make it difficult for the Fed to justify further near-term rate cuts while notably weak data would re-open the debate.

The data will also be seen in the context of President Trump’s nomination of Kevin Warsh as the next Fed Chair from May.

His nomination has been broadly welcomed by markets with reduced fears over a dollar-debasement policy.

MUFG commented; “He is a credible candidate to be the next Fed Chair who has previously worked as a governor. It has helped the US dollar to rebound as the risk premium priced in recently has been scaled back.”

ING also sees scope for a further dollar recovery; “The de-basement trade that seemed primarily behind the USD plunge of the past week has started to unwind since Kevin Warsh became US President Donald Trump’s nominee for Federal Reserve Chair. The size of the correction in overbought precious metals is probably offering some additional support to the dollar, but we have stressed repeatedly how the USD drop appeared too detached from the macro story anyway.”

There are still expectations of further Fed rate cuts later this year.

In this context, MUFG is still sceptical over the medium-term dollar outlook and commented; “It is unlikely President Trump would have picked Kevin Warsh if he did not share a preference for lower rates at least initially, and in recent public comments Kevin Warsh has called on the Fed to lower rates.”

It added; “It supports our view that the US dollar will continue to weaken this year with the rebound in recent days likely to be short-lived.”

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TAGS: Pound Dollar Forecasts