Pound to Dollar Forecast: Can GBP Hold 1.32 as Bond Yields Surge?

Modified: Tuesday, 6 October 2026 17:21 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: Can GBP Hold 1.32 as Bond Yields Surge?

The Pound to Dollar exchange rate (GBP/USD) remains under pressure close to three-month lows around 1.3200 as the US Dollar continues to dominate global currency markets.

Although weak payroll data has sharply reduced the probability of another Federal Reserve hike in October, elevated US yields, fragile risk appetite and expectations of further tightening over the coming year continue to underpin the Greenback.

GBP/USD Forecasts: Near 3-Month Lows

The Pound to Dollar (GBP/USD) exchange rate has again found support below the 1.32 level, but has struggled to make any headway with selling interest close to 1.3250 and again tested 1.32 after the US open, close to 3-month lows.

The dollar secured renewed gains amid fresh concerns surrounding US and global inflation trends with traders wary over risk trends even though equities made tentative gains.

UoB is still backing a GBP/USD move towards 1.3140 and noted; “While the [downside] buildup has eased somewhat with the subsequent rebound in GBP, we will continue to hold the same view as long as the ‘strong resistance’ at 1.3265 is not breached.”

Lloyds Bank sees an increased risk that GBP/USD will slide to or below 1.30.

There are still important stresses within the UK and global bond markets. The UK 10-year yield is trading around 5.40% while higher yields are having an important impact on mortgage rates. The five-year rate, for example, has hit the 6% level for the first time in three years.

Fragile risk conditions will tend to support the dollar and could have important implications for carry trades.

MUFG commented; “Rising bond yields are also beginning to trigger a pick-up in FX market volatility, making conditions more challenging for carry trades in the near term.”

"The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fuelling safe-haven flows into the greenback," said Matthew Ryan, head of market strategy at Ebury.

On Friday, the latest US employment report recorded an increase in non-farm payrolls of 29,000 compared with consensus forecasts of around 90,000. There was also a notable downgrading of 60,000 for the previous two months.

Following the data and comments from key Fed officials, there was a shift in near-term interest rate expectations with markets now pricing in only around a 20% chance of a further rate hike at the October meeting.

Traders, however, are still pricing in three rate hikes by the middle of next year.

ING commented; “Core support for the dollar should continue to come from the fact that expectations for the monetary policy tightening cycle remain far more resilient for the Fed than for overseas central banks.”

The US ISM non-manufacturing index edged lower to 54.9 for September from 55.4 previously, but new orders hit a 4-year high and prices also increased at a faster rate.

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TAGS: Pound Dollar Forecasts