Rabobank Pound To Dollar Forecast: 1.30 As Rate Support Fades

GBP/USD Forecast: Rabobank Targets $1.31 Before Fall to $1.30

Rabobank sees Pound Sterling slipping towards $1.30 as rate support fades, while Britain’s fiscal plan offers only qualified reassurance against French risks.

The Pound to Dollar exchange rate fell to $1.3368 on Friday, down 0.65% from Thursday’s close.

Pound Sterling had closed at $1.3477 on Wednesday, but its subsequent retreat has erased those gains despite Thursday’s Bank of England rate increase.

Rabobank’s latest monthly outlook forecasts GBP/USD at $1.31 in three and six months, then $1.30 at twelve months, with the twelve-month target around 2.8% below Friday’s quote.

The projections were published on 3 November, before the election outcome, BoE decision and Friday’s US jobs figures.

They reflect an important distinction: Britain’s fiscal position may offer reassurance relative to France, while an unwinding of UK rate expectations still leaves the Pound vulnerable against the Dollar.

The first hike arrived, but the disagreement is over what follows

Jane Foley, Rabobank’s Head of FX Strategy, sets out the risk:

“In RaboResearch’s view, the market continues to price in too much BoE policy tightening. Our central view is that following a November rate hike that the Bank is unlikely to move more than once more this cycle. If the market unwinds rate hike speculation, GBP is at risk of being undermined into 2027.”

The BoE raised Bank Rate to 4.00% on Thursday, as Rabobank expected, although the vote split differed from its forecast.

Eight policymakers backed a quarter-point increase and Catherine Mann preferred half a point, compared with Rabobank’s anticipated 7-2 split.

Senior Macro Strategist Stefan Koopman expects the next quarter-point increase in February 2027, taking Bank Rate to 4.25%.

“We favour February rather than December for a second hike. This allows the MPC to move gradually and the February forecast round gives it more information on the economic outlook. Further hikes cannot be ruled out if energy prices remain elevated and second-round effects start to emerge.”

Those effects would arise if higher energy bills fed into broader wage and price increases.

The latest decision therefore leaves a meaningful challenge to Rabobank’s currency view: the MPC could deliver more tightening than the bank expects.

Pantheon’s post-decision assessment forecasts two further rises to 4.50%, illustrating that disagreement.

Rabobank’s own tables put Bank Rate back at 4.00% at twelve months, while its US forecast leaves the upper end of the Fed’s target range at 4.25%.

That would erode the prospective return on Sterling relative to Dollars, although exchange rates also depend on how much of that difference investors already anticipate.

US jobs provide a fresh test after the election

The Democrats’ victory in both chambers of Congress initially accompanied lower Treasury yields and a weaker Dollar, as investors assessed constraints on further fiscal stimulus.

That response helped Sterling earlier in the week, but Friday’s US employment release showed payrolls rising by 165,000 in October, with unemployment at 4.1%.

Revisions also added 84,000 jobs to the combined August and September totals.

Our reading is that continued hiring makes it harder to argue that the election outcome alone removes the case for further Fed tightening.

Rabobank expects a December increase followed by unchanged rates through 2027.

Its pre-election analysis already allowed for a Democratic victory, with Senior US Strategist Philip Marey writing:

“Any Democratic victory would lead to gridlock in fiscal policy and potential brinkmanship related to government shutdowns (the first approaches on December 11) and the debt limit in 2027. In other words, the real economy won’t get a fiscal impulse.”

The bank also cautions that congressional losses would not remove the President’s executive powers over the Iran conflict, leaving energy inflation capable of upsetting the interest-rate outlook.

Fiscal reassurance has limits for the Pound

Rabobank’s greater confidence in Sterling against the Euro rests partly on the UK’s budget consolidation plan, compared with French political and fiscal uncertainty.

Foley writes: “The UK’s fiscal position is far from enviable, but at least it has an improving primary deficit which should provide some reassurance for GBP markets.”

The primary deficit excludes interest payments, and those payments are precisely where the UK chapter identifies a growing problem.

Koopman writes:

“Higher interest rates are pushing up debt servicing costs by about £14bn, and rather than offsetting this through higher taxes or lower spending, the government decided to borrow more now and make the fiscal offset after the next general election. While this is within the lines of the fiscal framework, we don’t think it is very credible.”

That limits how far the calmer gilt-market response to the Budget can be read as an endorsement of Britain’s finances.

The modest fiscal package also leaves households exposed to much of the energy shock, while Rabobank forecasts UK growth slowing from 1.3% this year to 1.1% in 2027.

What this means for GBP/USD

Rabobank’s $1.30 twelve-month forecast implies that Sterling’s relative fiscal advantage over the Euro will not prevent losses against the Dollar.

The main risk is that investors reduce their expectations for UK interest rates while the Fed keeps US borrowing costs elevated.

Thursday’s BoE increase does not settle that question, particularly with Pantheon expecting more tightening than Rabobank.

For the Pound, the next test is whether pressure on activity restrains the BoE before persistent inflation forces a longer tightening cycle.

Koopman writes:

“At the same time, by late Q1, a credible prospect of de-escalation could change the MPC’s calculation again, allowing it to look through still-high headline inflation on the assumption that the worst of the shock is finally passing.”