Pound to Dollar Forecast: AI Bubble Fears Threaten USD Strength

Modified: Tuesday, 20 October 2026 16:46 BST - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: AI Bubble Fears Threaten USD Strength

The Pound to Dollar exchange rate (GBP/USD) has held above 1.3300, remaining close to four-week highs as concerns over a potential correction in US technology and AI stocks undermine Dollar confidence.

Pound Sterling has retained a firm tone despite fragile global risk appetite, with investors increasingly questioning whether an equity sell-off could force the Federal Reserve to reconsider its tightening plans.

GBP/USD Forecasts: Near 4-Week Highs

The Pound to Dollar (GBP/USD) exchange rate was held below the 4-week highs of 1.3370 seen on Friday, but held above the 1.3300 level.

Overall Pound sentiment held firm while the dollar was unable to take advantage of fragile risk conditions. Traders were watching Wall Street closely with a particular focus on AI stocks on the 29th anniversary of “Black Monday.”

Scotiabank is positive on the Pound outlook after GBP/USD held support; “With recent price action basing around the low point of the sideways range in place since April, the pound’s solid gain last week should put spot on course to retest the upper end of the range (1.3650/75) in the coming weeks. Initial, key resistance sits at 1.3435 (200-day MA).”

UoB sees the potential for GBP/USD gains to 1.3405.

Markets see less than a 20% chance of a Fed rate hike in October, but just over a 90% chance of a December move. Markets, however, are wary that any sell-off in Wall Street could shift the Fed narrative.

ING commented; “stock market turmoil is enough to drastically reduce Federal Reserve tightening plans, even with inflation running hot. The reasoning is probably linked to the market wealth effect that many believe has underpinned US economic resilience. This is enough to suggest the dollar will not be the safe-haven of choice and may actually lag many other G10 currencies if stock market instability originates in tech/AI.”

MUFG also noted potential risks; “US financial markets have been a major beneficiary of strong foreign investor demand driven by AI-related optimism. Foreign investors purchased USD942 billion of US equities in the twelve months to July, while purchases of US corporate bonds increased sharply to USD452 billion over the same period. These sizeable inflows highlight how the USD has become increasingly tied to investors’ search for higher returns in US financial markets, rather than benefiting from its traditional safe-haven status.”

It added; “However, this dynamic also leaves the USD more exposed to a reversal if sentiment towards AI deteriorates.”

There will, however, also be potential implications for the Bank of England and Pound.

HSBC sees the risk of GBP losses; “US rates may remain restrictive for longer, supporting the dollar, while US activity and full employment offer a firmer foundation. By contrast, UK growth momentum is fragile.”

BBH is also cautious on the GBP/USD outlook; “In our view, the BoE may not need to tighten as much as markets anticipate, which is a drag on GBP.”

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TAGS: Pound Dollar Forecasts