Pound Sterling to Dollar Forecast: Why the USD Continues to Outperform

Modified: Thursday, 28 May 2026 16:41 BST - Written by Admin

STORY LINK Pound Sterling to Dollar Forecast: Why the USD Continues to Outperform

The Pound to Dollar exchange rate (GBP/USD) drifted lower as Sterling struggled to find fresh support amid mounting concerns over higher UK energy costs, political uncertainty and a more cautious outlook for Bank of England policy. At the same time, the US Dollar continued to benefit from resilient Treasury yields and growing expectations that the Federal Reserve may need to maintain a hawkish stance for longer.

GBP/USD Forecasts: Drifts Lower

The Pound to Dollar (GBP/USD) exchange rate was unable to make any headway on Wednesday and drifted lower towards 1.3420. There is no major GBP/USD support until the 1.3300 area.

The dollar maintained a firm overall tone amid uncertainty surrounding the Iran situation and the potential for a more hawkish Federal Reserve to head-off evidence of increased inflation pressures.

Meanwhile the Pound was unable to make headway as higher energy costs will sap support while markets expect the Bank of England to tread carefully when sanctioning any rate hikes.

A fresh row within the Labour Party will also increase reservations surrounding the forthcoming Makerfield by-election and likelihood of a formal challenge to Prime Minister Starmer.

Globally, although oil prices declined on Wednesday, there is still a high degree of uncertainty over the outlook for the Iran conflict and energy prices.

According to Rabobank; “A look at the current landscape suggests to us that a peace deal is far beyond the horizon.”

It added; “The possible outcomes of the war in Iran are immeasurable, but even in the pipe dream scenario where the war ends tomorrow, logistics are king. If a deal were to be magically achieved tomorrow, there are still somewhere around 1,500 ships still trapped in the Strait of Hormuz.”

If oil prices climb again, the dollar will tend to gain ground, especially with increased US concerns over inflation and this would put downward pressure on GBP/USD.

ING expects more hawkish rhetoric from Federal Reserve officials; “Barring a dramatic collapse in the AI build-out story, it looks as though we could be moving into a hawkish phase. Tomorrow will see the release of the April PCE price data, where inflation will be moving further away from the Fed's 2.0% target. And the build-up to the June FOMC will see increasing focus on the need for the Fed to remove its implicit easing bias.”

Domestically, Ofgem announced that the energy price cap will increase 13% from the beginning of July. This will put upward pressure on inflation later in the Summer, but also pose a threat to consumer spending.

Kathleen Brooks, research director at broker XTB commented; “although the rising price cap will put upward pressure on inflation, the second-round effects are likely to be minimal, since the UK economy is showing signs of weakness and the unemployment rate is rising.”

In this context, any comments from Bank of England officials will continue to be monitored closely.

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TAGS: Pound Dollar Forecasts