Pound to Dollar Week Ahead Forecast: Fed Hike Odds Top 50% as USD Recovers

Modified: Monday, 31 August 2026 10:01 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Week Ahead Forecast: Fed Hike Odds Top 50% as USD Recovers

The Pound to Dollar exchange rate (GBP/USD) retreated to one-week lows below 1.3550 after another failure to break resistance around 1.3650, with Federal Reserve Chair Kevin Warsh's inflation warnings providing fresh support for the Dollar.

Markets now see a greater than 50% chance of a September Fed rate hike, although investment banks remain divided over whether policymakers will ultimately tighten.

GBP/USD Forecasts: Fed rate hike?

On technical grounds, Lloyds Bank sees scope for Pound to Dollar (GBP/USD) exchange rate gains to at least 1.38.

Standard Chartered now forecasts little change in GBP/USD at 1.36 on a 12-month view from 1.33 previously.

GBP/USD was unable to break resistance around 1.3650 during the week and dipped to 1-week lows below 1.3550 on Friday as the dollar posted net gains.

Lloyds Bank sees scope for near-term GBP/USD losses to 1.35, but added; “the mid-term picture still looks constructive, and we’d expect to see dip buyers back there. The primary objective remains a push up through 1.3658, a break of which would open the highs touched at the start of the year above 1.3800.”

Standard Chartered commented on the outlook; “We are raising both of our GBP/USD forecasts, mainly on a softer USD outlook. Resilient UK activity and a relatively cautious BoE provide support for the GBP.

It is still cautious over the underlying UK outlook; “However, UK unemployment at 4.9%, softer wage momentum and a 0.5% m/m fall in July retail sales should limit the pace of GBP gains.”

Standard Chartered has reservations over underlying US fundamentals; “The initial declines in long-end yields and the USD suggest that higher US bond yields provide less reliable USD support when driven by fiscal concerns and the term premium rather than stronger growth or core real yields. July US non-farm payrolls falling by 23,000, wage growth slowing to 3.2% y/y and headline consumer inflation easing to 3.4% y/y all point to a less one-sided US growth story.”

The bank is still cautious over forecasting sharp dollar losses; “However, August business activity remains resilient. We see bond buybacks, softer labour and consumption data as near-term USD headwinds rather than signs of an abrupt US downturn.”

The outlook for interest rates on both sides of the Atlantic will be a key element. On Friday, Federal Reserve Chair Warsh expressed concerns over inflation

According to Warsh; “The Fed will have work to do should inflation not appear to be cooling.”

In response, markets now consider that there is a greater than 50% chance that the Fed will hike rates in September.

UBS, however, is not convinced that the Fed will hike rates; “Overall, the data released since the previous Fed meeting do not, in our view, provide a materially stronger case for a rate increase. We therefore expect the Fed to hold rates steady.”

At this stage, markets are slightly less confident that the Bank of England will hike rates this year with no change expected in September.

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TAGS: Pound Dollar Forecasts