Pound to Dollar Forecast: GBP/USD Bounces from 1.32 as US Yields Ease

Modified: Wednesday, 7 October 2026 21:16 BST - Written by James Fuller

STORY LINK Pound to Dollar Forecast: GBP/USD Bounces from 1.32 as US Yields Ease

The Pound to Dollar exchange rate (GBP/USD) has rebounded towards 1.3280 after once again finding support above 1.3200, as a modest retreat in US Treasury yields weakened the Dollar.

Pound Sterling has benefited from the pause in Dollar buying, although concerns over the UK's October Budget and expectations of further Federal Reserve tightening continue to limit confidence in a sustained Pound recovery.

GBP/USD Forecasts: Bouncing Again from 1.32

The Pound to Dollar (GBP/USd) exchange rate found support just above the 1.3200 level on Tuesday and rallied to highs just above 1.3280.

The Pound held firm in global markets while the dollar overall edged weaker as US yields moved slightly lower.

Morgan Stanley considers that there should be a higher risk premium on the Pound and, with further dollar strength, is forecasting a GBP/USD slide to 1.2850.

The dollar index (DXY) retreated to near 101.50 from 18-month highs above 102.00 recorded last week. The DXY’s technicals are also worrisome, with momentum failing to confirm these latest highs in spot and offering ‘negative divergence’ that is typically associated with exhaustion and an eventual bearish reversal.”

Scotiabank noted that the dollar performance has been more mixed over the past 24 hours; “G10 currencies continue to trade in mixed fashion vs. the USD with a majority showing gains into Tuesday’s NA open. The dispersion in performance among the G10 currencies is notable and a clear departure from the broad-based and nearly unbroken run of USD strength observed through much of September.”

If the 101.50 area breaks, the bank does not see much support until 100.

Expectations of a further Fed rate hike have continued to drift lower with markets pricing in just under a 20% chance of an October move.

Danske Bank commented; “We continue to expect the Fed to hike rates again in December and March. We think monetary policy tightening will proceed gradually, as the FOMC takes time to evaluate the data before deciding to hike rates again.

ING is not prepared to call a dollar top; “Risks remain skewed to the upside, although the Fed story may not change materially over the next few days given the light calendar.”

Domestically, Chancellor Healey warned that there would be tough decisions in the October 28th budget and also stated that tax decisions had not yet been made.

Morgan Stanley considers that there are important risks surrounding the budget; "With so many medium-term decisions yet to be made, a challenging tax-hiking arithmetic and relatively benign expectations from market participants around this Budget — at least per our conversations — we see more pronounced downside than upside risks.”

Markets, however, are pricing in around an 80% chance of a November rate hike which is continuing to underpin the Pound.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts