– Written by
Frank Davies
STORY LINK Pound-to-Dollar Forecast: Fed Rate Hike Pushes GBP/USD to 7-Week Lows
The Pound to Dollar exchange rate (GBP/USD) fell to seven-week lows around 1.3365 after contrasting Federal Reserve and Bank of England decisions strengthened the Dollar’s interest-rate advantage.
The Fed raised rates and signalled that further tightening remains likely, while the BoE held at 3.75%, leaving Sterling under pressure despite stronger-than-expected UK retail sales.
GBP/USD Forecasts: Near Seven-Week Lows
The Pound to Dollar (GBP/USD) exchange rate remained under pressure at the end of the week after contrasting policy signals from the Federal Reserve and Bank of England.
GBP/USD slumped to seven-week lows around 1.3365 before recovering modestly towards 1.3370 on Friday.
The Federal Reserve raised interest rates and signalled that further tightening is likely, while the Bank of England held rates at 3.75% despite growing inflation risks.
The contrasting policy stance helped strengthen the Dollar and left Sterling struggling to recover.
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UoB commented; “We will maintain our negative view as long as GBP holds below the ‘strong resistance’ at 1.3460.”
Scotiabank noted immediate support around 1.3350 and added; “We see additional support in the 1.3300/1.3320 area.”
Fed Signals Further Tightening
The Federal Reserve increased benchmark interest rates by 25 basis points to 3.75%-4.00% on Wednesday, in line with market expectations.
The decision was unanimous, while the updated dot plot showed that 16 of 18 policymakers expect at least one further rate increase before the end of 2026.
Fed Chair Kevin Warsh also struck a broadly hawkish tone, stressing that the economy remains close to full employment and allowing policymakers to focus more heavily on persistent inflation pressures.
He avoided explicit forward guidance, but the updated projections reinforced expectations that further tightening remains likely.
ING is less convinced that the Fed will deliver a sustained series of hikes; “Ordinarily the assumption is that if the Fed hikes, they don’t move just once, and indeed their forecast table does have a further hike pencilled in. However, this time around we think it may end up being a one-off.”
The bank added; “We think risks are more balanced for USD now that the monetary policy boost has been absorbed, but they remain tilted to the upside in the near term.”
ING expects markets to continue pricing the possibility of another hike, with high oil prices and reduced concerns over Dollar debasement providing additional support.
MUFG also expects one further Fed hike, but sees limits to Dollar upside; “The US dollar gains ahead should also be curtailed by the fact that other central banks are set to turn more active in hiking rates as well.”
Near-Term Outlook: BoE Holds despite Inflation Risks
The Bank of England kept rates unchanged at 3.75% on Thursday, in line with expectations.
The Monetary Policy Committee again voted 6-3 to hold, with Catherine Mann, Megan Greene and Huw Pill supporting an immediate increase to 4.0%.
Governor Andrew Bailey warned that rates could still need to rise if elevated energy prices persist and evidence emerges of stronger second-round inflation effects.
The Bank also said inflation could rise above 4% early next year if energy pressures remain intense.
Markets continue to see a meaningful chance of a November hike, but expectations for a more aggressive tightening cycle eased following the meeting.
Friday’s stronger UK retail sales provided Sterling with some support, with volumes rising 0.5% in August compared with expectations for a 0.2% decline.
The data reinforced signs that the UK economy remains relatively resilient and increased pressure on the BoE to retain a tightening bias.
Markets now price roughly a 65% chance of a November rate increase.
For GBP/USD, the 1.3350 area remains the immediate support level.
A sustained break below this region would expose 1.3300-1.3320, while Sterling would need to recover above 1.3460 to materially improve the short-term technical outlook.
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TAGS: Pound Dollar Forecasts
