Pound to Dollar Week Ahead Forecast: GBP Defies Equity Sell-Off

Modified: Monday, 26 October 2026 07:01 BST - Written by Frank Davies

STORY LINK Pound to Dollar Week Ahead Forecast: GBP Defies Equity Sell-Off

The Pound to Dollar exchange rate (GBP/USD) has climbed to six-week highs above 1.3400 despite renewed equity-market weakness, with Sterling continuing to show resilience ahead of the UK Budget.

The Pound faces a crucial test of confidence, however, after a sharp deterioration in consumer sentiment, while investment banks remain divided over whether the Dollar's interest-rate advantage will drive GBP/USD lower into 2027.

GBP/USD Forecasts: Test of Resilience

Danske Bank forecasts a decline in the Pound to Dollar (GBP/USD) exchange rate to 1.25 on a 12-month view.

According to Danske; “We remain bullish on broad USD against most of G10. As tighter financial conditions and high energy prices begin to weigh on global growth momentum, we believe defensive currencies will outperform cyclicals towards 2027.”

Credit Agricole sees GBP/USD at 1.31 at the end of 2026 before a rebound to 1.39 by the end of next year.

The bank commented; “We continue to think many Fed related positives are already in the price of the USD and expect the October FOMC meeting to confirm that view especially if the Fed Chair Kevin Warsh fails to signal that another rate hike is imminent. FX investors will also keep an eye out for any renewed Fed comments linking the policy outlook to US financial conditions.”

The Pound was again resilient during the week despite weaker equity markets and GBP/USD hit a 6-week high just above 1.34 before stabilising.

The latest PMI business confidence surveys were slightly stronger than expected with the composite output index at an 8-month high, but there was a sharp slide in consumer confidence.

Neil Bellamy, Consumer Insights Director at GfK commented; “There has been an extraordinary collapse in consumer confidence in October, down 11 points to -24. The last time we saw an 11-point drop was in July 2016, following the Brexit vote.”

The budget will be the next test of confidence. Bank of America commented; “Whilst Budget Day appears well owned, GBP risk premium is close to the lows of the year.”

It added; "All in all, our economists think that the Government will deliver a cautious Budget and adhere to the Fiscal Rules. Tougher decisions await but this is for 2027 and not the here and now."

There are strong expectations that the Bank of England will raise interest rates at the November policy meeting.

As far as the Federal Reserve is concerned, markets do not expect an October hike, but are still pricing in a December move.
According to Morgan Stanley; "Inflation has been above the Fed's 2% target for nearly six years. The risks are in the direction of a Fed that ultimately needs to hike rates more than we expect."

Nordea maintains a positive dollar stance and expects a GBP/USD retreat to below 1.30; “Inflows into US equities and credit are unlikely to fade simply because interest rates are slightly higher. To the extent that these flows remain unhedged, they create sustained demand for dollars.”

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TAGS: Pound Dollar Forecasts