Pound Sterling Forecast: Dollar Struggles as Fed Rate Hike Doubts Grow

Modified: Tuesday, 25 August 2026 20:31 BST - Written by Frank Davies

STORY LINK Pound Sterling Forecast: Dollar Struggles as Fed Rate Hike Doubts Grow

The Pound US Dollar (GBP/USD) exchange rate held close to recent six-month highs on Tuesday as weaker-than-expected US consumer confidence data limited demand for the ‘Greenback’.

At the time of writing, GBP/USD was trading at around $1.3630, little changed on the day and close to Friday’s peak above $1.3670.

The US Dollar (USD) struggled to gain traction on Tuesday after the latest Conference Board consumer confidence index disappointed expectations.

US consumer confidence fell from a revised 90.2 in July to 89.4 in August, its weakest reading since January. Economists had expected confidence to remain unchanged.

The decline was driven by a deterioration in expectations for future business and labour-market conditions, adding to recent evidence that momentum in the US economy is cooling.

The figures followed weaker retail sales and softer inflation data, reinforcing doubts over whether the Federal Reserve will raise interest rates at its September meeting.

Safe-haven demand provided the Dollar with some protection, however, as investors continued to monitor escalating US-Canada trade tensions and Washington’s expanded sanctions campaign against Iran.

The Pound (GBP) remained relatively well supported as markets continued to price a meaningful chance of another Bank of England interest-rate increase before the end of the year.

Recent UK data has pointed to a resilient economy, while headline inflation has risen back to 2.9%.

Sterling has also retained some support from recent research suggesting that UK productivity growth may be stronger than previously estimated.

Resolution Foundation calculations indicate that output per hour increased by around 1.1% annually during the two years to June, substantially better than earlier official estimates suggested.

The improving productivity picture could help strengthen the UK's longer-term growth prospects, although concerns surrounding elevated gilt yields and the autumn Budget remain important risks.

Near-Term GBP/USD Forecast: Softer US Data Keeps $1.37 in Sight

Looking ahead, the latest deterioration in US consumer confidence adds to the case for the Federal Reserve to leave interest rates unchanged in September.

Further evidence of weaker US economic momentum could keep the Dollar under pressure and allow GBP/USD to challenge its recent highs again.

The $1.3650-$1.3675 region remains the immediate resistance area, with a sustained break potentially opening the door to $1.3700.

Conversely, renewed risk aversion could provide the safe-haven Dollar with support.

The US sanctions campaign against Iran has widened significantly, while the trade dispute with Canada remains unresolved, leaving geopolitical and trade developments capable of generating renewed volatility.

With little major UK data due in the near term, Sterling may remain particularly sensitive to movements in global risk appetite and expectations surrounding US monetary policy.

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TAGS: Pound Dollar Forecasts