Pound to Dollar Forecast: Can GBP/USD Hold Key 1.35 Support?

Modified: Wednesday, 13 May 2026 12:01 BST - Written by Ben Hughes

STORY LINK Pound to Dollar Forecast: Can GBP/USD Hold Key 1.35 Support?

The Pound to Dollar exchange rate (GBP/USD) fell to fresh 10-day lows near 1.3500 as mounting political turmoil in the UK and another sharp sell-off in government bonds weighed heavily on Sterling sentiment.

Investors remain deeply concerned about the future of Prime Minister Keir Starmer amid growing Labour Party divisions, while rising oil prices and renewed geopolitical tensions have simultaneously boosted demand for the US dollar.

GBP/USD Forecasts: Posts 10-Day Lows

The Pound to Dollar rate dipped sharply to 10-day lows just above 1.3500 before a limited recovery.

There is near-term support near 1.3500 with further support around 1.3450.

The Pound was undermined by unease over UK political tensions and a sell-off in bond markets while the dollar secured net gains amid a fresh increase in oil prices and geo-political fears.

Prime Minister Starmer remains in office, but the position remains perilous amid Ministerial resignations. There was renewed selling in bond markets with the 10-year yield above 5.10% while the 20 and 30-year yields hit 26-year highs. Higher yields will undermine the economy and raise fresh fears over fiscal sustainability.

Kathleen Brooks, research director at XTB commented; “If this is a drawn-out leadership battle, or if Starmer lays out a timetable to leave in the coming months, both Starmer and Reeves will be seen as lame ducks who have no control over the public purse. This would be a bad position for the UK to find itself in, especially since our last election was less than 2 years ago. Right now, it’s hard to see how the bond market can stabilize, and there could be further downside ahead.”

SocGen’s Kit Juckes also expressed concerns over Sterling; “However it plays out, we are in for a period of uncertainty about future Labour policies. Increased spending is a given, and so are higher taxes, almost certainly including higher taxes on wealth and housing.

He added; “Layer that on top of geopolitical uncertainty, rising energy costs, and UK 2026 consensus GDP growth forecasts which have fallen from 1.1% at Christmas to 0.8% now, and there isn’t much to make anyone feel good about the pound.”

The dollar drew support from higher oil prices after President Trump rejected the latest Iranian proposals and warned that the ceasefire was on life support.

MUFG commented; “The latest developments continue to highlight that ending the conflict and re-opening the Strait could take longer than expected, and result in a more disruptive outcome for the global economy and financial markets.”

According to ING, there is the risk of complacency; “Markets have been reluctant to price a renewed escalation, despite Trump’s claim yesterday that the ceasefire is “on life support” and further reports of military activity in the Strait of Hormuz. The longer this stalemate persists, the greater the upside risks for the USD, both in the near term and over the medium run.”

As far as the US data is concerned, the headline inflation rate increased to 3.8% from 3.3% and slightly above consensus forecasts of 3.7% with an increase in the core rate to 2.8% from 2.6%.

The data will reinforce doubts whether the Federal Reserve will be in a position to cut interest rates.

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