GBP to USD Forecast: US PPI Data to Guide US Dollar Direction

Modified: Thursday, 26 February 2026 20:01 BST - Written by Frank Davies

STORY LINK GBP to USD Forecast: US PPI Data to Guide US Dollar Direction

The Pound US Dollar (GBP/USD) exchange rate struggled on Thursday, with markets closely monitoring developments around a key UK by-election.

At the time of writing, GBP/USD was hovering near $1.3535, slightly lower on the day after rebounding from an earlier dip to $1.3519.

The Pound softened at the start of Thursday’s session as investors kept a wary eye on the Gorton and Denton by-election, a contest that has drawn national attention amid an increasingly unsettled political backdrop.

Surveys point to an exceptionally tight race, with the governing Labour Party locked in competition with Reform UK and the Green Party, each polling at around the 30% mark. The absence of a decisive favourite has amplified the sense of unpredictability surrounding the outcome.

For Sterling, the implications stretch beyond the constituency itself. The vote is being treated as a gauge of Prime Minister Keir Starmer’s grip on his party, at a time when internal tensions and sliding approval ratings have already unsettled markets. A disappointing result for Labour could reignite debate over his leadership and add to the prevailing air of instability.

Meanwhile, the momentum behind Reform UK and the Greens underscores a wider erosion of the traditional two-party structure. The possibility of a more fragmented political landscape and the policy uncertainty that could accompany it kept the Pound on the defensive as trading progressed.

The US Dollar struggled to extend its advance against the Pound as an upbeat market tone dulled demand for traditional safe-haven assets.

As confidence picked up during the European session, investors showed a preference for higher-yielding and more growth-sensitive currencies. In turn, the ‘Greenback’ surrendered some of its earlier momentum, with the improved risk appetite capping USD’s upside.

Short-Term GBP/USD Forecast: US Producer Prices in Focus

Friday’s spotlight falls on the latest US producer price index. If factory gate inflation shows further signs of cooling, it could weigh on the US Dollar by reinforcing expectations that the Federal Reserve has scope to lower interest rates in the months ahead. On the other hand, any upside surprise in producer prices may temper rate cut bets and lend the ‘Greenback’ some support.

For the Pound, attention will remain on domestic politics following the by-election. Any indication of growing unrest within Labour’s ranks could unsettle Sterling and limit its appeal.

Broader market sentiment is also likely to steer GBP/USD. A buoyant, risk-positive mood would tend to underpin the Pound while reducing demand for the safe-haven US Dollar. Should confidence falter, however, the Dollar may regain ground as investors seek shelter.

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