Pound to Dollar News, Forecast: GBP Retreats from Three-Month Best

Modified: Tuesday, 18 August 2026 12:16 BST - Written by David Woodsmith

STORY LINK Pound to Dollar News, Forecast: GBP Retreats from Three-Month Best

The Pound to Dollar (GBP/USD) exchange rate retreated on Tuesday after softer UK labour-market data encouraged some profit-taking following Sterling’s recent advance.

GBP/USD had climbed to three-month highs above 1.3570 on Monday as weaker US economic data reduced expectations for another Federal Reserve interest-rate increase.

The pair subsequently slipped back towards 1.3520 on Tuesday, although it remained comfortably above the 1.3500 level.

The Dollar has maintained a generally softer tone in recent sessions as investors question whether the Federal Reserve will tighten policy again in September.

Low volatility and demand for higher-yielding currencies have also helped underpin the Pound during the quieter summer trading period.

MUFG commented; “Overall, recent developments are supportive of our forecasts for the US dollar to re-weaken modestly heading into next year.”

The latest UK labour-market figures pointed to a further cooling in employment conditions.

The unemployment rate held at 4.9% in the three months to June, compared with expectations for a decline to 4.8%.

Employment increased by 83,000 during the second quarter, substantially below forecasts for an increase of 129,000.

Vacancies fell to 707,000 in the three months to July, while the number of payrolled employees declined for a sixth successive month.

Of particular importance for the Bank of England, private-sector regular earnings growth slowed to 2.8% year-on-year, the weakest rate since late 2020.

The figures reduced pressure on the BoE to raise interest rates in the near term and triggered a modest Sterling correction.

Markets nevertheless continue to price around one 25-basis-point UK rate increase by the end of 2026.

The underlying US Dollar outlook remains less convincing after another run of disappointing economic releases.

US retail sales declined 0.6% in July compared with consensus forecasts for a 0.1% increase.

The University of Michigan consumer sentiment index also fell sharply to 51.0 in August from 55.2 previously, compared with expectations for a much smaller decline.

The deterioration reflected renewed concerns over living costs and the economic impact of the continued Middle East conflict.

ING commented; “Friday's release of a softer set of US retail sales for July has added to the case against the Federal Reserve hiking rates in September.”

The bank noted that only around seven basis points of tightening were priced for the September meeting at the start of the week.

Recent US inflation data has also been relatively benign, reinforcing expectations that the Federal Reserve can afford to remain on hold while assessing the economic outlook.

A Reuters poll published on Monday found that a strong majority of economists expect the Fed to leave interest rates at 3.50%-3.75% for the remainder of 2026.

MUFG remains cautious over the strength of the US consumer during the second half of the year.

The bank noted; “Consumer spending had already slowed to an annualized rate of 1.9% in the first half of this year down from 2.3% over the last year.”

Tax cuts should continue to provide some support to household incomes, but MUFG sees the boost fading as the year progresses.

It added; “However, the incremental boost to consumer spending could fade in the second half of the year as the initial tax benefits are absorbed and spending restraint associated with Medicaid and SNAP reforms becomes more apparent.”

Further evidence of weaker consumption would reinforce expectations that the Fed has finished tightening and could expose the Dollar to renewed selling.

Near-Term GBP/USD Forecast: UK Inflation Could Revive 1.36 Challenge

UoB had maintained a constructive short-term stance ahead of Tuesday's employment data; “While we would have preferred a more decisive break above 1.3555, the move is sufficient to indicate that the upward bias remains intact.”

The bank added that any advance was likely to encounter firm resistance around 1.3600.

That level remains the immediate upside target if Sterling can recover from Tuesday's labour-market setback.

Wednesday's UK inflation figures will now be crucial.

A stronger-than-expected CPI reading would offset some of the dovish implications from the jobs report and could revive expectations of another Bank of England rate hike.

This could allow GBP/USD to challenge 1.3570 again, followed by the important 1.3600 area.

Conversely, softer inflation would strengthen the argument that domestic price pressures are cooling and could trigger a deeper Sterling correction.

Initial support is located around 1.3500, followed by the 1.3460 area.

Over the longer term, the mid-1.36s and then the 1.3800 region represent more significant resistance levels.

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TAGS: Pound Dollar Forecasts