GBP/USD Forecast: Pound Sterling Bounces from 1.3137 as Dollar Retreats

STORY LINK GBP/USD Forecast: Pound Sterling Bounces from 1.3137 as Dollar Retreats

Pound Sterling Reprieve as Dollar Slides, GBP/USD Rebounds from 2026 Low

The US Dollar posted sharp gains after the latest US inflation data, but there was a significant reversal later in the session as Treasury yields fell and a fresh technology-sector sell-off hit global risk sentiment.

The move continued into Asian trading, allowing the Pound to recover sharply against the US currency.

Stronger-than-expected UK GDP data and gains for the FTSE 100 also helped protect Sterling.

After slumping to a fresh 2026 low at 1.3137, the Pound to Dollar (GBP/USD) exchange rate rebounded towards 1.3250.

According to UoB; “The decline to 1.3137 appears to be more of a range expansion rather than the start of a sustained decline.”

Scotiabank commented; “Despite the volatility in spot in the past 24 hours, the broader range that Cable has been trading within since the spring remains effectively intact. Key support remains 1.3140/50. Gains above 1.3275/80 may drive more strength towards the low/mid 1.33s.”

Fed Hike Expectations Ease after Tech Sell-Off

The outlook for Federal Reserve policy has become more uncertain following the sharp move in equities.

Immediately after the stronger US CPI release, markets raised the probability of an October Fed rate increase towards 50%.

Those expectations subsequently fell back as Treasury yields retreated and the technology sector came under heavy selling pressure.

A sustained decline in equities would tighten financial conditions and reduce the urgency for another near-term Fed hike.

MUFG commented; “We are still assuming that the Fed will leave rates on hold this month after comments from Fed officials indicating that they are not in a rush to hike again as soon as this month.”

The bank also highlighted the importance of changes in financial conditions following the technology sell-off.

MUFG commented; “After record capital inflows into the US equity market encouraged by investor optimism over AI, the price action overnight highlights that it leaves the US dollar vulnerable to a correction lower when investor sentiment towards AI sours.”

It added; “Nevertheless, the current fundamental backdrop remains supportive for the US dollar.”

AI Sell-Off Changes the Usual Dollar Reaction

ING also noted that the latest market move provided an unusual test of the Dollar’s traditional safe-haven role.

The bank commented; “For the FX market, overnight price action provides a preview of how currencies will perform during a big AI correction. Rather than rallying as a safe haven, the dollar weakens as the Fed cycle gets repriced dovishly.”

That dynamic could remain important if technology shares continue to fall.

Further equity-market weakness would likely pull US yields lower and reduce expectations of additional Fed tightening, which could place more pressure on the Dollar.

Conversely, a stabilisation in equities combined with persistently high inflation could restore expectations of another rate increase and revive Dollar demand.

For GBP/USD, the 1.3140-1.3150 area remains the key downside support zone.

A sustained break below that area would expose 1.3000.

On the upside, a move through 1.3275-1.3280 would strengthen the recovery and bring the low-to-mid 1.33s back into focus.

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TAGS: Pound Dollar Forecasts