USD/GBP Outlook: Bearish, as the rate is below its recent average and near recent lows, indicating a challenging environment for the dollar.
Key drivers:
• Rate gap: The Federal Reserve is leaning towards potential rate cuts in 2026, while the Bank of England remains cautious, likely limiting GBP's declines.
• Risk/commodities: Oil prices remain volatile, which can impact the US economy and, in turn, weaken the dollar against the pound.
• One macro factor: Concerns over potential US tariffs and possible recession risks in the UK complicate the outlook for both currencies.
Range: Expect USD/GBP to drift within its recent range as it tests the lower end while facing some headwinds.
What could change it:
• Upside risk: A stronger-than-expected core PCE price index could boost the USD if it signals persistent inflation.
• Downside risk: Further escalation of US-EU tensions could amplify pressure on the dollar, leading to deeper losses against the pound.