Pound to Dollar Forecast: US Bond Concerns Drive GBP Above 1.3670

Modified: Friday, 21 August 2026 22:31 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: US Bond Concerns Drive GBP Above 1.3670

The Pound to Dollar exchange rate (GBP/USD) surged to a six-month high of 1.3675 as persistent concerns over US Treasury intervention and the outlook for long-term bond yields kept the Dollar under heavy pressure. Stronger-than-expected UK services data added to Sterling support, although the pair surrendered part of its advance after breaking above the May highs.

GBP/USD Forecasts: Six-Month High

The Pound to Dollar (GBP/USD) exchange rate extended its advance on Friday, reaching fresh six-month highs before giving back part of the move later in the session.

GBP/USD climbed as high as 1.3675, its strongest level since February 11, before retreating towards 1.3645.

The Dollar remained under pressure amid concerns that US Treasury efforts to suppress long-term bond yields could ultimately undermine confidence in the currency.

The Dollar index remained close to three-month lows, leaving Sterling on course for a fourth consecutive weekly gain against the US currency.

According to MUFG; “There appears to now be more avenues opening for US dollar weakness ahead rather than dollar strength.”

The Pound also benefited from continued expectations that the Bank of England could still raise interest rates before year-end, despite economists generally expecting policy to remain unchanged.

UoB had identified resistance just above 1.3650, with a sustained break potentially strengthening the case for a move towards the 1.3800 region.

That resistance was breached during Friday's session, although GBP/USD was unable to maintain the move above 1.3670.

Friday's UK business surveys provided further evidence that the economy retained momentum during the third quarter.

The S&P Global services PMI increased to 52.8 in August from 52.1 previously, reaching a six-month high and comfortably beating expectations for a slowdown.

The stronger services performance helped offset a modest easing in the manufacturing PMI to 51.5.

Business optimism in the services sector also rose to a seven-month high, while new orders improved.

The figures followed stronger-than-expected second-quarter GDP data and reinforced expectations that the UK economy could expand by around 0.3% during the third quarter.

There were less encouraging signals elsewhere.

Retail sales volumes excluding fuel fell 0.9% in July after a strong June performance, while government borrowing figures showed an unexpected budget deficit.

Nevertheless, the broader UK data flow has remained sufficiently resilient to keep expectations of another Bank of England rate increase alive.

US Treasury Policy Keeps Dollar under Pressure

The US Treasury's decision to increase purchases of longer-dated bonds remained an important driver for currency markets.

The Treasury announced on Wednesday that it would at least double the size of buybacks of longer-dated securities in an attempt to improve liquidity and contain the surge in long-term yields.

Danske Bank commented; “The increased reliance on short-end issuance links the government's financing costs more closely to the Fed's monetary policy.”

The bank also suggested that renewed concern about Federal Reserve independence may have contributed to broad Dollar weakness.

ING commented; “Yesterday's intervention in the Treasury market suggests the recent rise in longer-dated yields has touched a raw nerve.”

It added that a more activist Treasury reduced one potential risk to financial markets and was “slightly dollar negative”.

MUFG also warned that the policy could damage confidence in US assets.

The bank commented; “Even if the Treasury buy-back plan does contain yields, the US dollar now remains more vulnerable to the downside on the fact that yields are potentially lower.”

In practice, long-term Treasury yields have already started rising again despite the buyback announcement, suggesting investors remain concerned about the US fiscal outlook.

The 30-year yield had reached its highest level since 2007 earlier in the week, driven by concerns over debt sustainability, inflation and heavy issuance.

Jackson Hole Takes on Added Importance

MUFG also highlighted the implications for Federal Reserve policy.

The bank commented; “What this buyback announcement does mean is that the Jackson Hole speech next week by Fed Chair Warsh has now become more important.”

Fed Chair Kevin Warsh will face a difficult balancing act.

A strongly hawkish message could trigger another sell-off in Treasuries and undermine the Treasury's attempts to stabilise long-term yields.

Conversely, a softer stance risks reinforcing concerns that monetary policy is becoming too accommodating or influenced by the administration's preference for lower borrowing costs.

The minutes from July's Federal Reserve meeting confirmed that policymakers had become more concerned about inflation, with several officials prepared to support another rate increase if price pressures failed to ease.

Capital Economics nevertheless commented; “The minutes of the Fed’s July meeting confirmed that the rate-setting committee had become more hawkish since the June meeting but, with the inflation, labour market and activity data since then all on the soft side, there is little to suggest that interest rate hikes are imminent.”

Markets currently place roughly a one-third probability on a September Fed increase.

Near-Term GBP/USD Forecast: 1.3675 Break Opens Route towards 1.38

GBP/USD's move to 1.3675 has taken the pair beyond the May highs and strengthened the short-term technical picture.

A sustained break above the 1.3670-1.3680 area would bring 1.3700 into immediate focus, followed by the 1.3800 region highlighted by UoB.

Sterling could receive further support if resilient UK data keeps Bank of England tightening expectations alive while investors continue to scale back expectations for Federal Reserve action.

The Dollar remains vulnerable, however, for reasons that extend beyond interest-rate differentials.

Treasury intervention has revived wider concerns over the US fiscal outlook and the risk that attempts to suppress bond yields shift pressure from Treasuries onto the currency instead.

On the downside, 1.3600 should now provide initial support for GBP/USD.

A sustained retreat below this level would weaken the immediate bullish structure and bring the 1.3550 area back into focus.

For now, the combination of resilient UK economic data and persistent unease surrounding US fiscal and bond-market policy leaves Sterling with a firm underlying bias against the Dollar.

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TAGS: Pound Dollar Forecasts