Pound-to-Dollar FX Forecast: Fed Hike Talk Boosts USD, Pressures GBP

Modified: Monday, 8 June 2026 08:01 BST - Written by Frank Davies

STORY LINK Pound-to-Dollar FX Forecast: Fed Hike Talk Boosts USD, Pressures GBP

The Pound to Dollar exchange rate (GBP/USD) remains under pressure after stronger-than-expected US employment data reinforced expectations that the Federal Reserve could keep interest rates higher for longer.

With markets increasingly debating whether the next Fed move could be a hike rather than a cut, the dollar has regained momentum and pushed GBP/USD back towards the lower end of its recent trading range.

GBP/USD Forecasts: Pressure on the Fed

MUFG sees the risk of a GBP/USD decline to at least 1.32 in the near term before a limited net recovery to above 1.35 at the end of 2026.

Bank of America is still positive on the Pound outlook with scope for GBP/USD gains to at least 1.40 late in 2026.

There has been a shift in US rate expectations which has underpinned the dollar and GBP/USD dipped to test support below 1.34 on Friday after stronger than expected US jobs data.

ING commented; “There is a creeping view that US growth could be re-accelerating as AI investment seeps through the broader economy. Healthy jobs data and higher pricing intentions from this week's ISM business surveys can add to expectations that the Fed ends up hiking this year. We expect the dollar to remain supported.”

MUFG notes the balance of risks have shifted; “While the argument put forward of the need for a rate hike in the US remains unconvincing in our view it is clear that the debate on Fed policy has shifted from no change or a cut to no change or a hike with most comments from Fed officials now assessing the risks between a hike or no hike.”

Bank of England policy will also be a key factor, especially with splits within the committee. Markets are not expecting a June rate hike with around a 50% chance of a July hike with investment banks still uncertain.
ING narrowly expects a prolonged pause by the BoE, but added; “we’re not ruling out a July hike if the Strait of Hormuz remains heavily disrupted. And it’s why we’re likely to see a greater number of officials vote for a rate hike later this month.”
MUFG commented; “we still expect the BoE to deliver two rate hikes this year, but we have pushed back the timing to July and November from June and July previously.”

It added; “With no signs of wage setting behaviour changes and inflation expectations relatively stable, the BoE can afford to wait a little longer.”

Bank of America is positive on the UK outlook; "Yet, as the AI revolution is still seen as a US phenomenon, the UK has emerged as an attractive destination for AI-linked inflows on top of well-established financial services and biotech influx from overseas.

It added; “It perhaps provides a reason why GBP has been resilient against the backdrop of ongoing political uncertainty. Further out, a higher productivity/capital intensive mix of FDI inflows should be seen as a medium-term positive for GBP valuation trend."

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TAGS: Pound Dollar Forecasts