Pound Sterling to Dollar Forecast: GBP Retreats as Risk Appetite Weakens

Modified: Thursday, 9 July 2026 15:02 BST - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Retreats as Risk Appetite Weakens

The Pound to Dollar exchange rate (GBP/USD) slipped back from 20-day highs near 1.3400 as renewed Middle East tensions encouraged investors to rotate back into the US Dollar.

Despite the pullback, Sterling remained relatively resilient, with markets continuing to favour the Pound on improving UK sentiment while awaiting fresh clues on the Federal Reserve's policy outlook.

GBP/USD Forecasts: Retreat from 20-Day Highs

After hitting 20-day highs at 1.3400 on Tuesday, the Pound to Dollar (GBP/USD) exchange rate has retreated to below 1.3350, although overall selling has remained limited.

The dollar gained support from a slide in risk appetite amid fresh fears surrounding Middle East developments while equities moved lower which curbed potential Pound support.

Jane Foley, head of FX strategy at Rabobank commented; "The USD has reacted, but the market has learnt to take Trump’s comments with a pinch of salt. The remarks may be meant to bring the opposition to the table. Nevertheless, they will raise anxiety levels another notch."

Immediate support comes in just above 1.3300. According to UoB; “Upward momentum has slowed with the pullback, and a breach of 1.3315 would indicate that the advance in GBP has come to an end.

Scotiabank is still relatively positive on the Pound outlook; “The recovery in UK-US spreads is offering fundamental support to the GBP, and compounding the sentiment-related strength observed in response to the market’s favourable assessment of the current UK leadership transition.

It added; “The recovery looks to have stalled around 1.34, with clear resistance offered by both the 50 and 200 day MA’s. We remain bullish however, and look to an extension of the GBP’s gains toward 1.36.”

Minutes from June’s Federal Reserve meeting will be released on Wednesday.

According to ING; "Based on post-meeting communication, we see limited risk of a dovish surprise in the minutes. We expect a cementing of the hawkish message to firm up dollar momentum.”

It added; “although we don’t expect it to lead to a break higher as markets may be reluctant to reprice rate expectations aggressively higher after the soft jobs report.”

Danske Bank is still backing Fed rate hikes; “Our base case is still that the Fed will remain on hold in July, but hike twice later, in December and March respectively.”

MUFG is less positive on the dollar outlook; “The CPI data next week will be key for the July FOMC. But the prospects look good to us that next week should convey signs of the start of disinflation.”

It added; “Leveraged Funds have turned very long dollars very quickly with the flow of data not particularly compelling in backing that up while Warsh’s tag as a hawk is also not well backed up. Sentiment and positioning could well turn quickly if next week’s CPI data is softer and Fed Chair Warsh fails to live up to his hawkish tag at his first semi-annual testimony.”

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TAGS: Pound Dollar Forecasts