Pound to Dollar Forecast: Short-Term Bounce, Medium-Term Headwinds

Modified: Tuesday, 7 April 2026 07:31 BST - Written by James Fuller

STORY LINK Pound to Dollar Forecast: Short-Term Bounce, Medium-Term Headwinds

The Pound to Dollar exchange rate (GBP/USD) recovered slightly after sliding to four-month lows near 1.3160, as markets assessed whether Sterling can remain resilient amid rising economic risks.

While expectations of future Federal Reserve rate cuts could weaken the dollar over time, concerns over UK growth and the impact of higher energy prices continue to limit the Pound’s upside.

GBP/USD Forecasts: UK resilient?

MUFG expects the Pound to Dollar (GBP/USD) exchange rate will rebound from short-term lows near 1.30, but with gains held to 1.35 by the end of 2026 amid a weaker dollar and fragile Pound.

Commerzbank forecasts GBP/USD gains to 1.39 at the end of the year.

During the week, GBP/USD dipped sharply to 4-month lows close to 1.3160 before a slight recovery. Risk appetite dipped on economic fears and UK yields retreated from peak levels.

MUFG commented; “the recent resilience of GBP, supported by a sharp move higher in UK yields, is also unlikely to last. We already see scope for catch‑up GBP weakness to better reflect the negative energy price shock hitting the UK economy.”

Bank of England (BoE) policy and market yields will be key drives of the Pound performance.

During the week, Governor Bailey expressed caution over rate hikes; "Of course, we have to deal with the shocks that come our way. But our remit is very clear on this that - we ⁠have to do so in a way that causes the least damage in terms of activity in the economy and in terms of jobs.”

MUFG sees market pricing as excessive; “We see the BoE delivering one, with a risk of two depending on broader market conditions. The BoE monetary stance is already restrictive with the economic backdrop mixed and hence the BoE has more time to assess the inflation risks.”

Standard Chartered is negative on UK fundamentals; “UK inflation stands at 3% remaining above the Bank of England’s (BoE’s) 2% target, but is relatively stable, likely reducing the urgency for immediate interest-rate adjustments. We see renewed GBP/USD selling pressure emerging amid concerns around growth and consumption, as recent data indicates a surge in input prices.”

Federal Reserve chatter has to some extent been sidelined by the Iran conflict, but the US economy will be a key medium-term influence.

The latest US jobs data was stronger than expected with a 178,000 increase in non-farm payrolls for March compared with consensus forecasts of around 65,000.

Commerzbank expects the Fed rate cuts will resume, hampering the dollar; “The Fed is under considerable political pressure to cut interest rates further. We expect it to resume rate cuts toward the end of the year, as inflation should have eased somewhat by then.”

According to Danske Bank; “Financial conditions have tightened significantly even without policy rate hikes, which weighs further on the growth outlook in the US and globally. We expect the Fed to resume rate cuts already from September, well ahead of current market pricing.”

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TAGS: Pound Dollar Forecasts