Pound Sterling to Dollar Forecast: GBP Supported but Upside Limited

Modified: Friday, 20 March 2026 13:01 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: GBP Supported but Upside Limited

The Pound to Dollar exchange rate (GBP/USD) rebounded toward 1.33 after the Bank of England delivered a more hawkish-than-expected policy stance, helping offset ongoing pressure from rising energy prices and weak risk appetite.

Sterling found support from higher UK bond yields and shifting rate expectations, although gains remain fragile as markets continue to monitor oil prices and global geopolitical risks.

GBP/USD Forecasts: Near 1.33
The Pound to Dollar rate dipped again to re-test the 1.3250 level in Asia on Thursday amid another surge in energy prices and slide in risk appetite as Middle East energy infrastructure was damaged.

GBP/USD rallied to 1.33 as UK yields moved higher and there was a slightly more hawkish than expected Bank of England policy decision.

Higher bond yields will, however, also increase concerns over fragile UK fundamentals and could trigger a cascade of deteriorating confidence.

According to UoB on a short-term view; “The likelihood of GBP closing below 1.3220 will remain intact as long as 1.3350 (‘strong resistance’ level) is not breached.”

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ING is not expecting sustained GBP/USD and forecasts 1.33 at the end of 2026.

As expected, the Bank of England (BoE) held interest rates at 3.75%. There was a 9-0 vote for the decision compared with talk that two members could back a reduction.

According to the bank; “The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist.”

The overwhelming message was a wait and see position given the high degree of uncertainty over the duration of higher energy prices.

Taylor and Dhingra want to resume rate cuts when conditions allow, but Mann noted that a rate hike might be required.

Following the decision, markets are pricing in two 25 basis-point rate hikes this year to 4.25% which helped underpin the Pound.

The UK 10-year bond yield also increased further to 6-month highs above 4.80%. Equity markets remained heavily in the red with a 2.4% slide in the FTSE 100 index.

Energy prices will remain a crucial factor. MUFG commented; “The latest developments have increased the risk of a bigger and more prolonged energy price shock alongside the ongoing closure on the Strait of Hormuz.”

It added; “Overall, we continue to judge that risks remain heavily tilted to the upside for energy prices and the US dollar given the unprecedented hit to global energy supply.”

Overnight, the Federal Reserve held interest rates at 3.75%, in line with consensus forecasts. Inevitably, there was no clear guidance on the outlook while the consensus forecasts by committee members was still for one cut in 2026.

ING expects energy prices will dominate for now, but did add; “If anything, some early signs the Fed is inclined to look through this inflation bump and still expects to cut this year reinforce our call for a weaker USD into year-end.”

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TAGS: Pound Dollar Forecasts