Foreign currency strategists at UBS expect a GBP/USD recovery as Fed rate expectations peak, despite Sterling losing around 1.1% over the past week.
UBS expects the British Pound to Dollar (GBP/USD) exchange rate to recover to 1.38 by December, reversing September’s losses before pushing above this year’s highs in 2027.
Its 24 September forecasts rise to 1.39 in March and 1.41 in June, holding there through September 2027.
Friday’s close of 1.3246 leaves that June target around 6.4% higher.
The bank’s argument rests partly on investors having become too aggressive in pricing further US interest-rate increases.
In its broader currency assessment, UBS says: “While we acknowledge US resilience, we also see stronger European data and believe market pricing has reached peak hawkishness-especially for the Fed.”
Friday’s 0.27% bounce still left the Pound down around 1.1% over the week following a slide to three-month lows.
US data help explain the Dollar’s resilience.
September’s flash composite PMI rose to 58.4 from 56.0, signalling the fastest growth since July 2021 alongside stronger cost pressures.
UBS nevertheless sees limits to the tightening cycle:
“Market sentiment has improved, as global PMIs remain solid and major central banks’ tightening cycles are widely expected to be shallow.”
Its forecasts also put Bank Rate at 4.00% in December and 4.25% from March through September 2027.
We see the test for Sterling’s projected rebound in whether US data allow Fed expectations to ease, reducing the Dollar’s interest-rate support.
UBS explains:
“That said, we only expect one more rate hike, and believe the data would need to beat expectations strongly for the Fed to tighten beyond that.”
Our currency coverage draws on live market data, official economic releases and published bank research.
