Pound to Dollar Forecast: Banks Split Over Sterling’s 2027 Outlook
Bank of America sees sterling rising to $1.45 by December 2027, while Goldman Sachs expects a brief rally to give way to losses as UK rate support fades.
The Pound to Dollar exchange rate rose to $1.3423 on Monday, up about 0.5%, as sterling recovered alongside other major currencies. Bank of America expects the pound to reach $1.45 by December 2027. Goldman Sachs forecasts $1.30 at twelve months from its 6 November report, roughly a month earlier.
Both see the pound reaching $1.37 first. BofA expects it there by this December and Goldman in three months. By the spring their projections are moving in opposite directions. BofA has $1.39 in March and $1.42 in June, while Goldman expects the initial rally to unwind to $1.33 in six months.
BofA sees the dollar weakening against both the pound and the euro
BofA’s strategists wrote, “We have been long-term GBP bulls, but having reached our 0.84 target for EUR/GBP, we adopt a more neutral near-term stance.”
The distinction matters for anyone judging the pound by what it buys in Europe. In BofA’s 5 November forecasts, one euro still costs 84p in June 2027, the same as in December 2026. In dollar terms, however, the euro rises from $1.15 to $1.19 between those dates. At 84p per euro, that June figure works out at almost $1.42 per pound. Sterling can gain five cents against the dollar over those six months while making little progress against the euro.
The first leg of that rise would come at a time of year when investors have tended to sell dollars. BofA sees competing influences on the dollar ahead of the December Federal Reserve meeting. “US data remain very resilient, but this is increasingly priced in, while uncertainty remains around the Fed’s reaction function.” Goldman says demand for the dollar as a haven can outweigh the effect of weaker technology shares during a sharp sell-off.
Goldman wrote, “We believe that AI-related strength has been an important contribution to the Dollar’s resilience this year through a variety of channels including higher prospective investment returns and higher policy rate expectations.” The bank added, “That said, as this week has shown yet again, this relationship is often overshadowed by the Dollar’s safe-haven properties on days with sharp global equity moves and is only evident over longer horizons.”
How much tightening is already in sterling’s price?
In the UK, Goldman’s economists expect the Bank of England to follow last week’s rate rise with another in February. Its currency strategists see a reason to be more cautious about how far Bank Rate can rise beyond that meeting.
“Our economists see the Bank as being on track for a second hike in February, and we think that nearer-term path should do little to weigh on Sterling, even if the end-2027 picture still points to excessive hike premium versus economists’ modal view, including on a relative basis to the rest of the G10.”
Goldman’s concern is that buyers paying today’s price for sterling are counting on more UK rate rises than economists generally expect. If investors revise those expectations down, the return available on UK assets relative to overseas alternatives could fall. Goldman added, “At the same time, we remain more cautious on the Sterling-specific side of the equation longer-term, where the valuation picture remains challenging.”
Energy bills offer one way to judge how much further UK rates might rise. Berenberg expects inflation to be falling to 3.6% in the second quarter of 2027, when the BoE projects a peak of 4.9%.
Berenberg wrote, “While a sizeable jump in energy prices in January is unavoidable, a further increase in domestic energy bills in April would require wholesale prices to increase further over the next three months.”
Prices at the factory gate give an earlier reading of what households may pay for goods. Its economists wrote, “Similarly, manufacturing output prices (excluding food), which lead core goods inflation by around four months, edged up to 2.9% yoy in September, consistent with core goods price growth holding steady too.”
In services, it expects weaker household demand to curb firms’ pricing power. “More expensive energy bills while employment and wage growth remain subdued will renew the squeeze on real disposable household income over the winter. The drop in consumer confidence in October following renewed increases in energy prices and mortgage rates indicates that the consumption smoothing that supported spending over the summer has run its course too. As a result, we expect consumer expenditure to stall, eroding pricing power and turning services price growth back onto a downward trend.”
What this means for GBP/USD
Monday’s rebound brought sterling back to a level Scotiabank watches for a change in direction. “The pound is back to the low 1.34 zone and retesting the 200-day MA (1.3420). Short-term patterns suggest gains could stretch to 1.3440/60 intraday.”
That put the possible extension for Monday at $1.3440-$1.3460. For a move towards $1.37 in the coming months, the euro offers a useful comparison. Sterling and the euro rising together against the dollar would fit BofA’s projections. If wholesale energy prices ease ahead of the April tariff reset and UK yields fall relative to US yields, the pound could give back an early gain along the lines Goldman expects.
