GBP/USD Forecast: Pound Sterling Hits Two-Month Low as UK Borrowing Surges

Modified: Tuesday, 22 September 2026 20:31 BST - Written by David Woodsmith

STORY LINK GBP/USD Forecast: Pound Sterling Hits Two-Month Low as UK Borrowing Surges

The Pound US Dollar (GBP/USD) exchange rate came under renewed pressure on Tuesday, briefly falling to its weakest level since late July as markets digested the latest UK public borrowing figures.

At the time of writing, GBP/USD was trading around $1.3364. The pairing remained slightly below Tuesday’s opening levels, although it had recovered somewhat from the near two-month low reached earlier in the session.

Sterling struggled on Tuesday after official figures revealed a sizeable increase in UK government borrowing, prompting fresh concerns about the limited fiscal room available to Chancellor John Healey ahead of next month’s Budget.

Data from the Office for National Statistics (ONS) showed that public sector net borrowing climbed to £18.3bn in August.

The figure was significantly higher than the £15.7bn anticipated by economists.

The larger-than-forecast deficit adds to the financial pressures facing the government and leaves Healey with less room for manoeuvre as he prepares to deliver his first Budget next month.

The US Dollar (USD) initially strengthened on Tuesday as a cautious market mood and expectations of a hawkish Federal Reserve encouraged demand for the safe-haven currency.

However, the ‘Greenback’ subsequently surrendered most of its earlier gains following reports that Iran could be prepared to reopen the Strait of Hormuz if the US takes steps to ease military pressure.

The prospect of a reopening prompted a sharp reaction across energy markets, with Brent crude slipping below $100 per barrel for the first time in two weeks.

Lower oil prices could ease some of the inflationary pressure currently facing major economies, reducing expectations for further monetary tightening.

That said, the improvement in market sentiment remained relatively limited.

Any reopening of the Strait remains conditional, while there has so far been little indication that Washington is prepared to agree to Tehran’s demands.

Near-Term GBP/USD Forecast: UK PMIs Could Set the Tone

Attention now turns to Wednesday’s preliminary UK PMIs, which could provide the next significant catalyst for the Pound US Dollar (GBP/USD) exchange rate.

Markets are expecting activity across both the manufacturing and services sectors to lose some momentum in September as the third quarter draws to a close.

Should the figures confirm a broader slowdown in private-sector activity, Sterling could come under additional pressure.

Signs of weaker domestic growth may reinforce expectations that the Bank of England (BoE) will maintain a cautious approach to interest rates, limiting support for the Pound.

Meanwhile, the latest US S&P PMIs are also due on Wednesday afternoon.

Although they typically attract less attention than the ISM surveys, evidence that the US private sector remains resilient could bolster expectations for tighter Fed policy and lend further support to the US Dollar.

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TAGS: Pound Dollar Forecasts