Pound-to-Dollar Forecast: Bond Turmoil, Energy Prices Support USD

Modified: Thursday, 3 September 2026 22:06 BST - Written by David Woodsmith

STORY LINK Pound-to-Dollar Forecast: Bond Turmoil, Energy Prices Support USD

The Pound to Dollar exchange rate (GBP/USD) remained close to three-week lows around 1.3500 as elevated energy prices and lingering bond-market tensions kept Sterling under pressure.

Although retreating Treasury and gilt yields provided some relief, investors remain cautious ahead of crucial US employment data that could determine whether the Federal Reserve raises interest rates in September.

GBP/USD Forecasts: Near Three-Week Lows

The Pound to Dollar (GBP/USD) exchange rate remained under pressure on Thursday after falling to a three-week low around 1.3480, although a modest recovery in risk appetite helped the pair regain the 1.3500 area.

Important support remains around 1.3480-1.3500, with a sustained break below this region increasing the risk of a deeper retreat towards 1.3300.

UoB had commented; “Downward momentum is building tentatively, and today we expect GBP to trade with a downside bias.”

Market tensions have eased slightly after this week's sharp sell-off in global bond markets, but underlying concerns surrounding inflation, energy prices and government borrowing costs remain elevated.

The US 10-year Treasury yield fell back towards 4.74% on Thursday after reaching 4.818% on Wednesday, while the UK 10-year gilt yield also eased after hitting 5.294%, its highest level since 2007.

Jefferies’ Mohit Kumar commented; “We are toning down our risk view by a notch. Rates are reaching a level where a further selloff in rates would be increasingly negative for both equities and credit.”

He added that there was still no obvious catalyst for a sustained decline in yields.

Energy prices remain a major influence on both Sterling and the Dollar.

Brent crude eased towards $95 per barrel on Thursday after this week's sharp advance, providing some relief for bond markets and reducing immediate inflation fears.

UK and European gas prices nevertheless remain elevated, leaving markets alert to the threat of another energy-driven inflation shock.

The Pound would be vulnerable if energy prices accelerate again and risk appetite deteriorates, while the Dollar could attract defensive demand.

ING had commented; “The renewed spike in energy prices only adds to the hawkish trend priced across money markets and again appears to be dollar-supportive.”

MUFG added; “It will be harder for the Fed to leave rates on hold if energy prices continue to rise ahead of the meeting.”

The bank said softer payroll and inflation reports would likely be required to prevent a September hike if energy costs remain elevated.

Near-term GBP/USD Forecast: US Jobs Report Now Crucial for Fed Outlook

Federal Reserve rate expectations remain finely balanced ahead of Friday's US employment report.

Markets had priced more than a 60% probability of a September increase earlier this week, but those expectations eased on Thursday after Fed Governor Christopher Waller signalled that he could support leaving rates unchanged if inflation continues to moderate.

Waller said policymakers should give disinflation more time to develop rather than automatically respond to temporary energy pressures.

His comments pushed the implied probability of a September rate increase back towards the mid-50% area and helped pull Treasury yields lower.

Danske Bank expects the internal Fed debate to remain intense; “The big question ahead of the September FOMC meeting instead becomes whether he will be able to convince a majority of the FOMC that the time is ripe for a hike.”

Friday's US payroll report will therefore be particularly important.

A stronger-than-expected jobs report would reinforce expectations that the Fed can tighten policy again and could push GBP/USD back below 1.3480.

Conversely, weak payroll growth or an increase in unemployment would strengthen the argument for a September hold, potentially allowing Sterling to recover towards 1.3550.

The subsequent US inflation report will remain equally important in determining whether the Fed ultimately raises rates later this month.

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TAGS: Pound Dollar Forecasts