The USD to GBP exchange rate has recently reached 90-day lows near 0.7406, which is approximately 1.5% below its 3-month average of 0.7518. This decline is attributed to a bearish sentiment surrounding the US dollar, stemming from expectations of aggressive interest rate cuts by the Federal Reserve in 2026, as implied by recent soft consumer price index data indicating inflation has eased to 2.7%. Analysts are closely monitoring upcoming economic indicators, such as consumer sentiment and inflation prints, which are likely to determine the dollar's trajectory.
In contrast, the British pound has gained strength, influenced by the Bank of England's recent interest rate decisions and signaling that any future monetary policy easing will be more cautious. The BoE has cut rates but indicated a slower pace of future cuts, bolstering confidence in the GBP. Additionally, recent retail sales figures may further support Sterling if they show anticipated growth.
Market analysts highlight the interplay between the expectations surrounding U.S. monetary policy and the UK's fiscal environment. The UK Chancellor's proposal for a £26 billion tax hike and the recent reacceleration of inflation to 2.6% are crucial factors that could weigh on GBP strength and overall economic performance.
Overall, the market sentiment indicates that the USD is likely to remain under pressure while the GBP may experience some upside, albeit tempered by the UK's economic challenges. Investors should stay attuned to upcoming data releases and Fed communications, as these will be essential in shaping the future direction of the USD to GBP exchange rate.
