Pound to Dollar Forecast: Sterling Tests 1.34 as Yield Demand Builds

Modified: Thursday, 22 October 2026 17:16 BST - Written by James Fuller

STORY LINK Pound to Dollar Forecast: Sterling Tests 1.34 as Yield Demand Builds

The Pound to Dollar exchange rate (GBP/USD) has climbed towards five-week highs around 1.3400 as stronger UK inflation reinforces expectations of a November Bank of England rate hike.

Pound Sterling continues to attract yield-driven buying, while the Dollar has struggled to capitalise on elevated US interest rates and geopolitical uncertainty, leaving analysts looking for a potential extension of the Pound's recovery.

GBP/USD Forecasts: Re-test of 5-Week Highs

The Pound to Dollar (GBP/USD) exchange rate has continued to find buying interest on dips and strengthened to re-test 5-week highs at 1.3400 around Wednesday’s New York open.

The Pound maintained a strong tone in global markets after the latest inflation data as markets continue to back a November rate hike while the dollar has been unable to make headway.

Scotiabank commented; “The GBP is consolidating gains on the short-term chart via a potential bull flag pattern. That development keeps our focus on the risk of gains extending quite significantly in the short run.”

It added; “A clear push above 1.3360 (short-term bull flag ceiling) should drive renewed gains in the pound, potentially towards the top of the broader trading range in pace in the past few weeks around 1.3650/75.”

According to SocGen; “The pound could be in demand on short covering and if bullish year-end seasonals re-establish themselves after the Budget next week.”

Domestically, the headline UK inflation rate increased to 3.5% for September from 3.1% the previous month and slightly above consensus forecasts of 3.4%. The core rate increased to 2.8% from 2.6%, in line with market expectations.

The data reinforced expectations that the Bank of England would increase interest rates in November.

Pantheon Macroeconomics commented; "Strong growth, stable or falling labour market slack and surging inflation mean the MPC will hike in November. We expect another hike in February and are very close to adding a third in May, or earlier."

Dollar developments will also remain crucial, especially with geo-political fears, upward pressure on energy prices and unease surrounding global equity markets.

The dollar was hampered by weak housing data on Tuesday with a decline in housing starts to an annual rate of 1.22mn, close to 6-year lows while pending home sales also declined sharply.

MUFG downplayed domestic concerns; “The negative impact on US dollar from housing market weakness should remain muted though given it is not a major policy focus for the Fed.”

It did add; “At the same time, rate hike expectations have been increasing for other G10 central banks including the BoC, BoE and RBA.”

Expectations of rate hikes outside the dollar area will limit potential support for the US currency.

ING is cautious over forecasting dollar selling; “We recognise that the softer dollar backdrop has shifted the balance of risks somewhat further in a USD-bearish direction. Even so, we continue to favour a gradual and orderly dollar decline rather than a sharper depreciation. The broader Fed, oil and rates narrative remains supportive.”

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TAGS: Pound Dollar Forecasts