Pound to Dollar Forecast: Bank of England Raises Rates as USD Slides

Modified: Thursday, 5 November 2026 17:16 BST - Written by James Fuller

STORY LINK Pound to Dollar Forecast: Bank of England Raises Rates as USD Slides

The Pound to Dollar exchange rate (GBP/USD) held close to seven-week highs around 1.3470 after the Bank of England raised interest rates to 4.00% in a more hawkish vote than expected.

Pound Sterling also benefited from continued Dollar weakness following the Democratic sweep of Congress, although resilient US employment data and expectations of another Federal Reserve hike limited further gains.

GBP/USD Forecasts: Near Seven-Week Highs

The Pound to Dollar (GBP/USD) exchange rate remained close to seven-week highs on Thursday after the Democratic sweep in the US midterm elections weakened the Dollar and the Bank of England raised interest rates.

GBP/USD had climbed close to 1.3500 following Wednesday's election results before consolidating around 1.3470 after the BoE decision.

The Dollar remains under pressure as investors assess the implications of Democrats taking control of both the House and Senate, although resilient US economic data and expectations of further Federal Reserve tightening have limited selling.

Scotiabank sees scope for eventual GBP/USD gains towards 1.3675, while MUFG maintains a more cautious year-end forecast around 1.33.

Democratic Sweep Keeps Dollar under Pressure

Democrats secured control of both chambers of Congress in a sweeping midterm election victory, delivering a significant setback to President Donald Trump's Republican Party.

The result creates divided government for the final two years of Trump's term and increases the potential for political gridlock over government funding, the debt ceiling and elements of the administration's economic agenda.

ING had commented; “One wild-card risk removed from the dollar's downside has been President Trump accepting these results.”

The bank sees potential for further Dollar weakness into next year if congressional gridlock restrains policy and tougher scrutiny of the technology sector weighs on AI-related equities.

The election result has also encouraged expectations that Washington may become less willing to escalate the conflict with Iran.

Oil prices fell sharply immediately after the election before rebounding modestly on Thursday, while Treasury yields also retreated.

MUFG had highlighted this geopolitical risk ahead of the result, noting that further military escalation would likely restore safe-haven Dollar demand.

The bank added that a move towards negotiations with Iran would instead favour an extension of Dollar weakness.

US fundamentals remain an important counterweight.

JOLTS job openings increased to 7.523mn in September, while Thursday's initial jobless claims fell to just 189,000.

Markets continue to price a strong chance of another Federal Reserve rate increase in December, although the implied probability has eased to around three-quarters.

Hawkish BoE Hike Supports Sterling

The Bank of England raised Bank Rate by 25 basis points to 4.00% on Thursday, its first increase in more than three years.

The Monetary Policy Committee voted 8-1 for the move, with Catherine Mann favouring a larger 50 basis-point increase to 4.25%.

The split was more hawkish than markets had expected.

Policymakers warned that the prolonged Middle East conflict and elevated energy prices continue to pose upside risks to inflation, with several members indicating that another near-term hike could be required if those pressures persist.

The Bank currently expects UK inflation to rise towards 5% during the middle of 2027.

Markets subsequently increased expectations of further tightening, with roughly three additional quarter-point increases priced through the end of next year.

The Pound reaction was relatively restrained because the November hike itself had already been fully anticipated.

The key issue for Sterling is now whether the Bank follows today's move with another increase in December or waits until early 2027.

For GBP/USD, the 1.3500 area remains the immediate upside barrier.

A sustained break above this region would bring 1.3550 and then Scotiabank's 1.3675 target area back into focus.

On the downside, 1.3400 should provide initial support.

Friday's US payroll report will be the next major test for the Dollar, with a strong release likely to reinforce December Fed hike expectations and limit further GBP/USD gains.

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TAGS: Pound Dollar Forecasts