Pound to Dollar Week Ahead Forecast: Can GBP Recover from Seven-Week Lows?

Modified: Monday, 21 September 2026 07:16 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Week Ahead Forecast: Can GBP Recover from Seven-Week Lows?

The Pound to Dollar exchange rate (GBP/USD) has slumped to seven-week lows below 1.3350 as diverging Federal Reserve and Bank of England policy expectations favour the US currency.

The Fed raised rates to 4.00% and retained a hawkish stance, while the BoE held at 3.75%, leaving Sterling vulnerable if markets further scale back expectations of UK tightening.

GBP/USD Forecasts: Pound Vulnerable on Divergence?

Danske Bank forecasts that the Pound to Dollar (GBP/USD) exchange rate will slide to 1.27 on a 12-month view amid a weaker Pound and strong dollar.

In contrast, Scotiabank has a 12-month forecast of 1.39 amid a constructive Pound outlook.

GBP/USD was firmly on the defensive during the week and slumped to 7-week lows below 1.3350.

The US Federal Reserve increased interest rates while the Bank of England held rates unchanged.

The Fed hiked rates to 4.00% with a unanimous vote and Chair Warsh adopted a hawkish stance with a focus on the need to curb inflation.

Danske Bank commented; “Near-term risks are closely tied to the war in Iran, while medium- to long-term risks continue to be tied to the US growth outlook and the US monetary policy outlook. A much firmer focus by the Warsh-led Fed on bringing down nominal pressures in the US economy, could result in a considerably stronger USD.”

ING noted on-going upward pressure on rates; “The much longer-lasting war in the Middle East has not only pushed energy prices to new highs, but also increased the risk that inflation could spread more broadly in the economy. This is why we now expect the Fed and the ECB to hike once more.”

The BoE held interest rates at 3.75%, in line with consensus forecasts with a 6-3 vote as Greene, Mann and Pill again voted for a hike to 4.00%.

The statement indicated that rates would probably need to increase if energy prices remain at elevated levels.

Danske is still not backing a UK rate hike; “Our base case remains for an unchanged Bank Rate until June 2027, when the BoE can resume the cutting cycle and deliver another 25bp rate cut. Bank Rate of 3.75% is already restrictive, and we are more sceptical about the growth outlook for the remainder of 2026.”

It did note significant risks to this outlook; “If energy markets do not improve and the economy continues to look resilient, we would then expect a rate hike, even in the absence of spillovers to broader price-setting. The cost of an “insurance hike” has declined in recent months, and this risk has clearly increased compared with July.”

Scotiabank still has an underlying positive Pound outlook, downplaying fiscal risks; “In politics, the narrative remains constructive as market participants and media signal ongoing confidence in the government’s efforts to maintain their commitment to fiscal responsibility.”

According to Credit Agricole; “The GBP will continue to take its cue from the evolution of UK rates and could remain vulnerable to any potential loss of relative rate appeal across the board.”

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TAGS: Pound Dollar Forecasts