Pound-to-Dollar Forecast: Bond Market Jitters, Fed Bets Boost USD

Modified: Thursday, 14 May 2026 11:36 BST - Written by Ben Hughes

STORY LINK Pound-to-Dollar Forecast: Bond Market Jitters, Fed Bets Boost USD

The Pound to Dollar exchange rate (GBP/USD) slipped back below the 1.3500 level as renewed UK political tensions and rising bond yields undermined Sterling sentiment.

Markets remain focused on speculation surrounding Prime Minister Keir Starmer’s future, while stronger US inflation expectations and persistent geopolitical risks continue to provide underlying support for the dollar.

GBP/USD Forecasts: Dips Below 1.35

The Pound to Dollar (GBP/USd) exchange rate was unable to break above the 1.3550 level on Wednesday and dipped below 1.35 around the US open.

UoB noted support around 1,3490 and added; “We do not expect the next support at 1.3455 to come into view.”

According to Scotiabank; “We look to support at the 50/200 day MA’s around 1.3430 at levels that correspond to the 38.2% Fibo.”

UK domestic politics, geo-political developments and UK data will all be important for the near-term Pound direction. The latest UK GDP data will be released on Thursday with expectations for a 0.1% March contraction after 0.5% growth in February.

The dollar secured net gains in global markets amid further doubts whether the Federal Reserve would be able to cut interest rates over the next few months. The Pound also failed to sustain a recovery with gains evaporating following reports that health Secretary Streeting will launch a leadership challenge to Prime Minister Starmer.

Immediate speculation surrounding Starmer’s position was dampened to some extent by the state opening of parliament, but there are still severe underlying tensions with the Labour leader remaining under intense pressure.

There are rumours that Streeting will resign on Thursday to mount a challenge and this could draw other candidates into the fray.

The bond market failed to hold initial gains with the 10-year yield just above 5.10% amid unease surrounding fiscal policy.

Scotiabank commented; “The major risk for the UK remains centered on the fiscal outlook and the loss of confidence associated with a change in Chancellor, given the reassurance provided by Rachel Reeves and her adherence to self-imposed rules.”

Energy prices and US developments will also be monitored closely. Following the latest inflation data, markets are not expecting Federal Reserve rate cuts this year and are pricing in close to a 60% chance that there will be a rate hike before year-end.

ING commented; “With reasonably high deposit rates of 3.65% (one week) and seen as a hedge if oil prices spike or equities turn south, the dollar should stay reasonably in demand for the time being.”

Iran developments will be important, especially given the impact on energy prices.

MUFG commented; “Time remains crucial here and further upward pressure on yields is likely to build over the coming days and weeks if there is no resolution to the closure of the Strait of Hormuz.”

It added; “So increased volatility on higher yields in the US is a key risk that would likely propel the dollar stronger. Bond markets will be key over the coming days and weeks for broader markets with inflation risks, as seen in the CPI report, rising.”

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