GBP/USD Forecast: Pound Sterling Falls as US Inflation Comes in Hot

Modified: Wednesday, 13 May 2026 21:51 BST - Written by David Woodsmith

STORY LINK GBP/USD Forecast: Pound Sterling Falls as US Inflation Comes in Hot

The Pound US Dollar (GBP/USD) exchange rate weakened on Wednesday as cautious trading conditions boosted demand for safer currencies.

At the time of writing, GBP/USD was trading at around $1.3498, down roughly 0.3% from Wednesday’s opening levels.

The US dollar (USD) traded with firm support in midweek trade as investors adopted a more defensive stance.

Persistent tensions in the Middle East continued to unsettle markets, while uncertainty ahead of talks between US President Donald Trump and Chinese President Xi Jinping also weighed on investor confidence.

Although trade is expected to dominate discussions, markets are increasingly alert to the possibility of disagreements over Iran, particularly as the US naval blockade threatens a major source of oil exports to China.

The latest US producer price index also lent support to the ‘Greenback’. Factory gate inflation accelerated more than forecast in April, reinforcing expectations that the Federal Reserve could keep interest rates elevated for longer.

While the Pound (GBP) lost ground against the US Dollar, it managed to steady against several other currencies as fears surrounding Prime Minister Keir Starmer’s future eased slightly.

Sterling sentiment improved after UK gilt yields retreated from recent highs, suggesting markets had become less concerned about an imminent leadership crisis within Labour.

Earlier in the week, long-dated gilt yields surged amid speculation that Starmer could face a challenge from a more fiscally expansionary successor, sparking concern over the UK’s borrowing outlook.

However, confidence remained fragile after reports emerged suggesting Health Secretary Wes Streeting may consider resigning in a move that could pave the way for a leadership bid.

Near-Term GBP/USD Forecast: UK Politics to Drive Sterling Volatility?

Looking to the latter half of the week, political developments in the UK are likely to remain a key driver of movement in the Pound to US Dollar (GBP/USD) exchange rate.

Any signs that support is building behind a potential challenge to Starmer’s leadership could inject fresh volatility into Sterling.

The uncertainty may also overshadow the UK’s latest GDP release, despite expectations that first-quarter growth will show a solid improvement.

Meanwhile, the US Dollar could face some headwinds on Thursday if the latest retail sales figures indicate that consumer spending slowed last month as forecast.

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TAGS: Pound Dollar Forecasts