Pound to Dollar Week Ahead Forecast: Bond Sell-Off, Political Uncertainty Rattle GBP

Modified: Monday, 18 May 2026 07:01 BST - Written by James Fuller

STORY LINK Pound to Dollar Week Ahead Forecast: Bond Sell-Off, Political Uncertainty Rattle GBP

The Pound to Dollar exchange rate (GBP/USD) slumped to fresh 5-week lows near 1.3300 as intensifying UK political turmoil, rising bond yields and growing fiscal concerns combined to hammer Sterling sentiment.

Despite stronger-than-expected UK GDP data, investors remained deeply sceptical over the country’s economic outlook amid mounting speculation surrounding Prime Minister Keir Starmer’s political future and renewed fears over Labour Party fiscal policy.

GBP/USD Forecasts: Pound Risks Intensify

SocGen has a year-end Pound to Dollar (GBP/USD) exchange rate forecast of 1.32.

Consensus forecasts within investment banks at this stage are 1.35, but with the risk of downgrades over the next few weeks.

The Pound posted sharp losses during the week despite better than expected GDP data. Markets were not convinced that the economy could remain resilient while domestic political tensions intensified while the dollar secured net gains as US yields moved higher and equities declined.

In this environment, GBP/USD dipped to 5-week lows near 1.3300 while there were sharp bond-market losses with the 10-year yield above 5.10%.

Credit Agricole commented; “The GBP could remain a pressure valve for anxious investors that fret about the negative consequences from a potential political and fiscal turmoil in the UK. Looking at the week ahead, next to political risks, FX investors will focus on the quality of the incoming UK data.”

Prime Minister Starmer remained under intense pressure following the resignation of Health Secretary Streeting and move to get Greater Manchester Mayor Burnham into parliament.

Neil Wilson, Saxo UK investor strategist commented; “There is a non-negligible chance that the market could overdo the risks from a Burnham leadership – a lot would depend on his choice of Chancellor. The situation remains very complex, however if we try to boil into simple terms for investors, the UK is in a very difficult position economically, fiscally and politically with no one seemingly able to come up with a credible plan to fix the nation’s finances and secure growth.

He added; “Inflation and yields are resetting at a higher level for the UK, which is not a good look for the currency.”

Risk appetite also deteriorated during the week with oil prices making gains.

According to IG chief market analyst Chris Beauchamp added; “Andy Burnham’s long quest to find someone to make space for him in Parliament has finally succeeded, but the prospect of the ‘King in the North’s return has not been good for UK borrowing costs.

He added; “Worries about higher spending commitments have seen investors take flight from UK bonds. For a UK economy already facing a potential energy crisis, sapping growth, the rise in yields is particularly grim news.”

The dollar also drew support from higher yields during the week amid solid data and increased inflation fears.

ING FX strategist Francesco Pesole commented; "The dollar is catching up with the strong data we've seen this week."

Investors are now pricing in a more than 65% chance that the Fed could raise rates by December, compared with less than a 20% chance a week ago, according to the CME FedWatch tool.

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TAGS: Pound Dollar Forecasts