- The GBP/USD forecasts of 2026 hinge primarily on the Fed's easing expectations, which are expected to override those of the Bank of England.
The GBP/USD forecasts for 2026 will be guided primarily by the rate-cut differentials between the Bank of England and the US Federal Reserve. The 1.3465 price mark serves as the initial point of this analysis and is an important baseline, as many bank analysts predict the pair will cluster around the mid-1.38s to the 1.40s in 2026.
The key element of the GBP/USD forecasts is the rate-cut differential between the central banks that regulate both assets. The Bank of England (BoE) and the US Federal Reserve (Fed) are expected to continue cutting interest rates in 2026, further weakening both currencies. The question is who cuts faster and more aggressively, which makes a case for one currency in the GBP/USD pairing to weaken relative to the other, providing the trading opportunity for 2026.
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Currently, the US Dollar is trading on the back foot against most of its peers, as a group of EU countries roundly rejected the US’s claim of the Danish autonomous territory. This issue has sparked a retreat from US assets. The Pound is now headed for its most significant two-day rise against the greenback since December, prompted by steep US Dollar selling amid the Greenland geopolitical row.
US President Donald Trump has threatened tariffs against several European countries starting Feb 1, emphasizing the potential for increased trade tensions. This should make investors feel cautious about US policy stability. Meanwhile, investors are dumping the US Dollar in favour of the Pound and Euro. The pair is now 0.56% higher this week as of writing.
GBP/USD Forecasts 2026: Macro Drivers
The key macro drivers of the GBP/USD forecasts in 2026 are:
- Fed easing expectations
- BoE easing expectations
- UK GDP, inflation, and employment data
- Risk sentiment and geopolitics
These factors are expected to be dynamic, which could translate into a volatile year for the pair.
- Fed easing expectations
The Fed easing expectations and the ultimate pull of this factor on the US Dollar are the major drivers for the GBP/USD forecasts. The market sentiment is overwhelmingly in favour of a softer dollar in 2026, with shifting rate expectations and rising prospects for further geopolitical tensions expected to drag USD-denominated assets lower. The trade scenario this week supports this narrative and could be a dress rehearsal for trader response to the pair as the year progresses.
2. BoE easing expectations
The BoE’s dovish shift in Q4 2025 is expected to weigh on the Pound, but not by much. Reuters reports that markets are pricing in two 25-bps rate cuts in 2026. However, this is not set in stone as recent growth data provided some support for the Pound. Improvements in GDP and employment data prints, as well as further heating of inflation, could lead to hawkish repricing, which supports the Pound at the expense of the greenback.
3. UK data
Improving UK sentiment from the last upbeat GDP data could prove supportive for the pair in 2026. The markets need to see continued upside in GDP momentum, along with improvements in labour market data, to further cement the bullish narrative for the GBP/USD in 2026. Consumer inflation prints will be a key component of the UK data watchlist for 2026.
4. Risk sentiment/geopolitics
The market action this week is a signal as to how traders could respond to further geopolitical risk premia. The Pound attracts demand in risk-on scenarios, while the USD plays a safe-haven role in risk-off market situations. An interplay of risk-on/risk-off factors and the geopolitical mix is a component of the GBP/USD forecast menu that cannot be ignored.
GBP/USD Forecasts 2026: Institutional Targets
What are the institutional GBP/USD forecasts for 2026?
MUFG has outlined an explicit quarterly price forecast for the pair for 2026. MUFG’s January 2026 FX outlook report calls for the GBP/USD to trade at 1.3490 and 1.3480 by the end of Q1 and Q2 2026. Price targets for end-Q3 and end-Q4 2026 are 1.3630 and 1.3780. This represents an implied upside potential of up to 300 pips, with most of the gains kicking in later in the year after H1 2026 consolidation.
Westpack has an end-of-year framing of 1.36, implying a 200-pip upside from mid-January’s price levels. This is a less aggressive forecast than MUFG’s.
Base case: The base case sees a USD downtrend, buoyed by Fed easing and moderation in BoE cuts relative to the Fed. This scenario sees the GBP/USD trading towards the 1.38 price mark.
Bull case: The bull case for GBP/USD forecasts is based on resilience in UK data, which leads to a hawkish repricing of BoE rate cuts. It is also based on softer US interest rates, a risk premium, and sustained Dollar strength as investors shy away from US assets. This scenario calls for a push towards the 1.40 price mark and above.
Bear case: Cooling of UK inflation and materially weaker UK GDP and labour market data could force the BoE into more aggressive rate cuts, which puts the Pound under pressure and causes a drop towards the lower-to-mid 1.30s despite a fundamentally weaker USD.
GBP/USD Forecasts: Technical Outlook
The pair has returned to the medium-term consolidation range bordered by 1.1985 and 1.4245. The recent uptick stemmed from a bounce on the trendline and the 1.3011 support, with room for the bulls to retest the upper boundary of this range at 1.4245. A break of this level leaves the bulls with clear skies to aim for 1.5779, the June 2015 high.
On the flip side, a breakdown of the trendline and the 1.3011 support (Q4 2025 low) leaves room for a bearish march to 1.2200 (20 January 2025 low) and potentially 1.1985, the floor of the range. There is potential for a pitstop at 1.2330, the low of 15 April 2024, along this pathway.
FAQ
What is the GBP/USD?
This is the pairing of the British Pound and the US Dollar.
What is the GBP/USD price today?
The current price of the GBP/USD as of writing on 20 January 2026 is 1.3445.
What are the GBP/USD forecasts for 2026?
Most institutional traders are forecasting a weakening of the US Dollar in 2026, with a rise in the GBP/USD above 1.36. Some have called for as high as 1.40.