Pound-to-Dollar Forecast: BoE Split Fails to Confirm GBP Breakout

Modified: Friday, 31 July 2026 10:01 BST - Written by Frank Davies

STORY LINK Pound-to-Dollar Forecast: BoE Split Fails to Confirm GBP Breakout

The Pound to Dollar exchange rate (GBP/USD) extended its sharp recovery to around 1.3464 on Thursday evening, gaining 0.7% as softer US inflation and a dovish interpretation of the Federal Reserve’s latest decision weighed on the Dollar.

Sterling received only limited support from a surprisingly divided Bank of England vote, while Barclays warned that month-end portfolio rebalancing could generate renewed Dollar demand against the Pound.

GBP/USD Forecasts: 1.35 Resistance in Focus

GBP/USD was quoted at 1.3464, returning to levels last seen in mid-July and trading around 1.3% above Monday’s close near 1.3290.

The pair has moved back above the 1.3400–1.3430 region, which should now provide initial support if the latest advance loses momentum.

Immediate resistance is located around 1.3480–1.3500, with a sustained break bringing July’s high at 1.3558 back into focus.

The Federal Reserve left its target range unchanged at 3.50%–3.75% on Wednesday, although Beth Hammack, Neel Kashkari and Lorie Logan all preferred an immediate quarter-point increase.

Despite the three hawkish dissents, markets focused on the absence of a rate hike and Fed Chair Kevin Warsh’s subsequent comments.

Citi commented; “We read Chair Warsh’s comments at the press conference as dovish.”

The bank added that “the curve steepened materially as markets priced out September and October hikes”, reducing the immediate yield support available to the US currency.

The Dollar also struggled after the Fed’s preferred inflation measure softened during June.

Headline personal consumption expenditure prices fell 0.1% on the month, while the core index increased by only 0.1%.

Annual headline inflation slowed to 3.7%, with the core rate easing to 3.3%, reinforcing expectations that policymakers may have time to wait before tightening again.

Barclays nevertheless warned that month-end flows could interrupt Sterling’s rally.

Its rebalancing model points to weak Dollar buying against most major currencies, but identifies the UK and Canada as exceptions.

According to Barclays, the model signals “moderate USD buying, driven by the outperformance of equities in these countries”.

Strong gains in UK equities can require international asset managers to sell Sterling and buy Dollars when restoring their currency hedge ratios at month-end.

These flows are usually temporary, but they could make it more difficult for GBP/USD to establish a clean break above 1.3500 during Friday’s session.

Barclays also retains a relatively constructive view of the US currency, saying the Dollar “will likely be supported in the coming weeks” as inflation concerns and caution surrounding expensive equity valuations limit further losses.

The Pound’s domestic interest-rate support was also less decisive than the headline Bank of England vote implied.

The Monetary Policy Committee voted 6–3 to keep Bank Rate at 3.75%, with Huw Pill, Megan Greene and Catherine Mann preferring an increase to 4.00%.

The majority nevertheless found “little evidence so far” of stronger second-round inflation effects and pointed to continued signs of underlying disinflation.

Rabobank summarised the decision; “Ignore the vote surprise, guidance a little less hawkish, Committee happy to keep waiting.”

The bank expects Bank Rate to remain at 3.75% through the end of 2027 and sees GBP/USD falling towards 1.3200 over the next three months.

Rabobank cited uncertainty surrounding the UK’s fiscal outlook, gilt-market sensitivity and the risk of lower UK interest-rate expectations as potential sources of renewed Sterling pressure.

CIBC offered an important counterweight to the dovish interpretation of the Fed decision, warning that the three US dissenters “should keep the market on alert for a hike in September”.

The bank’s central forecast remains for unchanged US interest rates through the remainder of 2026, but it sees renewed disruption to Gulf energy supplies as a potential trigger for tighter policy.

Near-Term GBP/USD Forecast: Break Above 1.35 Still Uncertain

Friday’s US Employment Cost Index will provide the next test of whether markets have moved too quickly to reduce Federal Reserve rate-hike expectations.

A softer reading would strengthen the case for a GBP/USD break above 1.3500 and expose July’s 1.3558 high.

Stronger cost pressures, renewed energy-market disruption or Barclays’ anticipated month-end Dollar demand could instead pull the pair back towards 1.3430 and 1.3400.

A break below 1.3400 would weaken the immediate recovery and bring the 1.3350 area back into view.

For now, short-term momentum remains positive, but the rally has been driven more by Dollar weakness than by a decisive improvement in the UK outlook.

Unless the Pound Sterling can hold above 1.3500 after the month-end fixing, Rabobank’s medium-term 1.3200 target will remain a relevant downside risk.

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TAGS: Pound Dollar Forecasts