GBP/USD Forecast: Pound Sterling Recovers as UK Bond Markets Stabilise

Modified: Monday, 18 May 2026 20:01 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Recovers as UK Bond Markets Stabilise

The Pound US Dollar (GBP/USD) exchange rate strengthened on Monday, clawing back some of last week’s losses as UK political concerns began to ease and British bond markets stabilised.

At the time of writing, GBP/USD was trading at $1.3393, up around 0.5% on the day.

The Pound (GBP) climbed on Monday as investors appeared to take a calmer view of the UK’s political backdrop.

Pound Sterling had been knocked last week by mounting speculation over Prime Minister Keir Starmer’s position, with the uncertainty spilling into the bond market and sending UK borrowing costs sharply higher.

However, the mood improved at the start of the week as fears of an imminent leadership challenge began to recede.

Further reassurance came from Andy Burnham, seen as a potential challenger, after he suggested that he would maintain the government’s current fiscal rules if he became Prime Minister.

His comments helped cool concerns around the UK’s fiscal outlook, allowing gilt yields to pull back from their recent near-18-year highs and easing a key source of pressure on the Pound.

GBP also found some support from the IMF’s latest UK growth upgrade. The fund lifted its 2026 forecast from 0.8% to 1%, citing the economy’s ‘strong pre-war momentum’.

With political nerves easing and borrowing costs retreating, Sterling was able to regain some of the ground lost during last week’s volatility.

Meanwhile, the US Dollar (USD) weakened on Monday as investors locked in gains following the currency’s strong run last week, which had carried USD to multi-week highs.

The safe-haven ‘Greenback’ also struggled to attract much fresh demand amid an uneven market mood.

Ongoing attacks in the Middle East kept investors cautious, preventing a stronger risk-on rally. However, tentative optimism over a potential US-Iran peace deal helped curb demand for safer assets.

As a result, the US Dollar lost ground as traders trimmed positions after last week’s advance.

Near-Term GBP/USD Forecast: UK Labour Data to Lift the Pound?

Looking ahead, the Pound could be driven by the UK’s latest labour market figures on Tuesday.

Economists expect unemployment to have held at 4.9% in the three months to March, pointing to a broadly unchanged jobs market. Wage growth is also forecast to remain steady, while employment is expected to rise by 107,000.

If the figures print in line with expectations, signs of resilience in the UK labour market could reinforce the view that the Bank of England (BoE) may need to raise interest rates.

Later in the session, comments from BoE Deputy Governor Sarah Breeden may also influence GBP. A hawkish tone from Breeden could help the Pound extend its gains.

For the US Dollar, the latest ADP weekly employment change figure may attract attention as investors look for fresh signals on the strength of the US jobs market.

Meanwhile, risk sentiment could remain a key driver of the ‘Greenback’. Any further developments in the Middle East may trigger volatility, particularly if they shift demand for safe-haven currencies.

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TAGS: Pound Dollar Forecasts