Pound Sterling to Dollar Forecast: "Sell the Dollar" Story Fades For Now

Modified: Wednesday, 4 February 2026 08:01 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: "Sell the Dollar" Story Fades For Now

The Pound to Dollar exchange rate (GBP/USD) is struggling to push higher as resilient US data undermines the fading “sell the dollar” narrative, with stronger manufacturing activity and stabilising yield spreads helping the greenback regain footing.

Pound Sterling remains supported, but shifting expectations for Federal Reserve policy are capping near-term GBP/USD gains below 1.37.

For those looking to secure the best available GBP/USD exchange rates, the current pullback may offer an opportunity to compare providers and lock in levels before the next US data catalyst.

GBP/USD Forecasts: Momentum Stalls Below 1.37

The Pound to Dollar (GBP/USD) exchange rate dipped sharply to lows at 1.3625 on Monday before rallying back above 1.3700 and trading around 1.3665 on Tuesday as dollar moves dominated.

According to UoB; “Given that conditions remain oversold, GBP is unlikely to decline further. Today, GBP is more likely to trade in a range, probably between 1.3640 and 1.3710.”

From a longer-term view, MUFG forecasts that GBP/USD will edge higher to 1.39 by the end of 2026 with gains on dollar weakness offset by a fragile Pound.

There has been further high volatility in precious metals during the past 24 hours with another round of wild trading in silver.

In FX markets, however, there has been a greater emphasis on the fundamentals of yield spreads.

The dollar drew some support from the latest US manufacturing data. The ISM index strengthened to 52.6 for January from 47.9 the previous month. This was well above consensus forecasts of 48.5 and the strongest reading since August 2022.

ING commented; “Production and new orders rose sharply, and order backlogs also moved into expansion, all pointing to solid momentum in output ahead.”

ING sees scope for further limited dollar gains; “our short-term valuation metrics keep pointing to room for further USD recovery across the board. The dollar recovery lost some steam overnight, and we think today’s price action may be mostly stabilisation rather than directional.”

MUFG added; “After diverging recently, the US dollar and yield spreads are becoming more aligned again. US yields and the US dollar were also lifted yesterday by the release of the much stronger than expected ISM manufacturing survey for January.”

Federal Reserve policy will still be a key element. Markets are now pricing in less than a 10% chance of a Fed rate cut for March with just over a 50% chance of a move over the first half of 2026.

If yields dominate and rate cuts are priced out, the dollar will tend to gain net support.

A partial US government shutdown will have an impact with a delay in the US employment report which was due on Friday. Tuesday’s JOLTS data will also be delayed, but Wednesday’s ADP data on private payrolls and ISM services-sector data will go ahead as scheduled.

MUFG expects rate cuts will resume; “We still expect the Fed to cut rates again once the new Fed Chair is in place. Kevin Warsh has previously criticised the Fed for not lowering rates and is likely to emphasize that higher productivity growth gives the US economy to grow more without creating inflation pressures.

It added; “Further Fed rate cuts are an important assumption behind our forecasts for further US dollar weakness in 2026.”

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TAGS: Pound Dollar Forecasts