Pound-to-Dollar Forecast: Weaker US Inflation Cuts Fed Rate Hike Bets

Modified: Wednesday, 15 July 2026 15:06 BST - Written by David Woodsmith

STORY LINK Pound-to-Dollar Forecast: Weaker US Inflation Cuts Fed Rate Hike Bets

The Pound to Dollar exchange rate (GBP/USD) climbed back above 1.3400 after softer-than-expected US inflation data prompted investors to scale back expectations of further Federal Reserve rate hikes.

Although geopolitical tensions in the Middle East continue to underpin the Dollar, the benign inflation report triggered a sharp fall in US Treasury yields and allowed Sterling to recover from earlier losses.

GBP/USD Forecasts: Back Above 1.34

The Pound to Dollar (GBP/USD) exchange rate again found support just below 1.3350 in Asian trading on Tuesday and rallied to 1.3430 after lower than expected US data with a dollar reversal as markets focussed primarily on global developments.

UoB commented on the GBP/USD outlook; “downward momentum has not increased significantly. Based on the prevailing momentum, a clear break below 1.3320 appears unlikely.”

According to Scotiabank; “We note the cluster of resistance levels between current spot and 1.3500 but anticipate an extension of the recovery to 1.36.”

Middle East events and the outlook for US interest rates are likely to dominate in the near term. The near-term impacts have pulled the dollar in opposite directions.

There have been further attacks on Iran by the US military while Iran has attacked ships in the Strait of Hormuz. In response, energy prices have moved higher again while risk conditions remain more fragile.

MUFG commented; “Tit-for-tat military strikes between the US and Iran have continued adding to concerns over the risk of more sustained disruption for energy supplies through the Strait of Hormuz.”

ING commented; “Short-term momentum is swinging back in favour of the dollar as the FX market is finally starting to take the Gulf re-escalation more seriously. Still, both oil (Brent is at $84/bl this morning) and the USD are showing reluctance to fully price back in another supply shock. That's despite the US reimposing a blockade in the Strait of Hormuz and oil inventories at worryingly low levels.”

Overnight, the US 10-year yield jumped to above 4.60%, not far below 18-month highs recorded in May.

There was, however, a notable reversal after the US data with a retreat to near 4.55% for the 10-year bond and lower yields pushed the dollar lower.

US consumer prices declined 0.4% for June with the year-on-year inflation rate dipping to 3.5% from 4.2% and well below consensus forecasts of 3.8%.

Core prices were unchanged on the month with the annual rate retreating to 2.6% from 2.9% and below expectations of 2.8%.

The dollar dipped after the data with less confidence that the Federal Reserve would hike rates twice before year-end. Markets also cut the probability of a July rate hike to below 20% from 40% the previous day.

According to ING; “Our call for the remainder of the year remains USD negative, primarily resting on another de-escalation and dovish Fed view. But risks, especially in the near-term, are clearly shifting to the bullish side for the greenback.”

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TAGS: Pound Dollar Forecasts