Pound to Dollar Exchange Rate Forecast: GBP Rally Stalls Above 1.35

Modified: Wednesday, 27 May 2026 13:46 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Exchange Rate Forecast: GBP Rally Stalls Above 1.35

The Pound to Dollar exchange rate (GBP/USD) pushed to fresh 10-day highs above 1.3500 as improving risk sentiment and hopes for progress in US-Iran negotiations weighed on the US Dollar. However, Sterling struggled to hold gains as investors remained cautious over geopolitical risks, elevated US yields and the prospect of a less dovish Federal Reserve.

GBP/USD Forecasts: Retreats from 10-day highs

As UK and US markets re-opened after Monday’s holiday, the Pound to Dollar (GBP/USD) exchange rate hit 10-day highs just above 1.3500 before settling around 1.3465 with the dollar resisting further selling.
According to OCBC; "There is no strong case to be bearish USD.”
UBS, however, is still positive on the medium-term Pound outlook; "While GBPUSD may stay subdued in the short term due to UK political noise and high oil prices, we expect a recovery as uncertainty fades, oil prices normalize, and robust economic data support the pound."

The US sanctioned strikes against Iranian targets overnight even though peace talks were reported as continuing. According to US Central Command strikes were designed "to protect our troops from threats posed by Iranian forces."

The overall reaction was muted with equities maintaining a strong overall tone while oil prices failed to recover much ground.

Scotiabank commented; “The market reaction appears remarkably muted, both in currencies and across major asset classes. US equity futures are trading just below Monday’s record highs, and oil prices remain soft with WTI seeing renewed weakness and softening back toward Monday’s intraday low under the psychologically important $90/ bbl level.”

According to ING; “With cash and futures equity markets powering ahead on Monday's de-escalation trade, one might have expected to see the dollar weaker across the board – but it has been holding up quite well.”

There was still an important element of uncertainty.
Charu Chanana, chief investment strategist at Saxo in Singapore, commented; "I would not confuse positive negotiation noise with a durable de-escalation yet, the real test is not the headline deal, but whether tankers can move freely, insurance premiums can fall, and energy flows can normalize.”
The outlook for interest rates was still an important element.

MUFG commented; “US yields look set to continue to provide support for the dollar with Fed officials more aligned with focusing on inflation risks. Fed Governor Waller’s speech last week underlined the shift with a signal of a potential rate hike if “inflation does not abate soon”.

ING added; “We suspect this is being driven by the view that the Federal Reserve is about to turn less dovish at a time when softer activity data is raising questions over how aggressive other central banks, especially in Europe, can be with their tightening this year.”

MUFG is still doubtful that rate hikes will be delivered; “We do not believe a rate hike is coming this year and indeed if a credible peace deal is achieved a rate cut this year is still feasible. But until both sides formally announce a deal, investors will likely trade cautiously given the inflationary pressures that are building.”

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TAGS: Pound Dollar Forecasts