**Credit Agricole Pound to Dollar Forecast: GBP/USD at 1.33 by End of 2026**
*Based on the article by Tim Clayton, originally published at ExchangeRates.org.uk*
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### Overview
The currency markets are facing mounting volatility, with traders and investors closely tracking the future trajectory of GBP/USD. In a recent research note, Credit Agricole presented an in-depth forecast for the Pound to Dollar exchange rate, projecting the GBP/USD to rise to 1.33 by the end of 2026. This forecast is underpinned by an analysis of UK and US economic fundamentals, central bank policy divergence, and broader risk sentiment trends.
This article delves into the core drivers shaping the GBP/USD outlook, examines the underlying rationale behind Credit Agricole’s projections, and situates these expectations within the broader context of recent developments in global relations, monetary policy, and market dynamics.
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### GBP/USD Performance Overview
– **Current Market Context**: The GBP/USD pair has experienced choppy trading conditions in 2024. Activity in this crucial FX pair is shaped by relative economic performances, monetary policy shifts, and international risk appetite.
– **Recent Trends**: The Pound staged a modest recovery in the first half of 2024 following earlier losses, while the US Dollar’s performance has reflected ongoing resilience in the face of policy uncertainty.
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### Key Drivers Behind the 2026 GBP/USD Forecast
#### 1. **UK Economic Recovery Prospects**
– The UK has faced significant economic headwinds since 2022, from persistent inflation to sluggish growth. However, Credit Agricole expects these difficulties to ease over the forecast period, with a moderate uptick in GDP and a gradual return of consumer and business confidence.
– **Inflation Dynamics**: UK inflation peaked in 2023 but has shown signs of cooling. The Bank of England (BoE) anticipates further progress towards its 2 percent inflation target.
– **Labor Market**: A robust UK labor market could lend further support to household spending and economic recovery.
#### 2. **US Economic and Monetary Policy Adjustments**
– The resilience of the US economy has kept the Dollar well-supported, particularly due to above-trend growth and continued job creation.
– The Federal Reserve has signaled a cautious approach to monetary easing, opting for patience amid sticky inflation.
– Credit Agricole expects some moderation in US economic outperformance over the next two years, resulting in a narrowing of the UK-US policy divergence.
#### 3. **Bank of England Policy Strategy**
– The BoE has undertaken significant tightening in its fight against inflation, raising rates to their highest levels in over a decade.
– Looking ahead, Credit Agricole forecasts a gradual reduction in UK interest rates through 2025 and 2026 as inflation continues to subside.
– As the BoE aligns its policy toward supporting growth, the gap between US and UK interest rates is expected to decrease.
#### 4. **Shifts in Global Risk Appetite**
– Risk sentiment is a perennial factor in FX market performance.
– A renewed hunt for yield and rising appetite for riskier assets could favor sterling if the UK economy stabilizes and political headlines improve.
– Conversely, shocks to global sentiment or a flight to safety could benefit the Dollar, at least temporarily.
#### 5. **Structural Factors and Longer-Term Trends**
– UK current account dynamics have stabilized, with a reduced reliance on portfolio inflows.
– Post-Brexit trade normalization and improved UK-EU relations could gradually reduce economic uncertainties and lift the medium-term sterling outlook.
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### Forecast Details: Path to GBP/USD 1.33
#### Timeline of Expectations
– **End 2024**: Credit Agricole projects the Pound to end at around 1.25 to 1.26 against the Dollar.
– **2025**: A steady upward movement is anticipated, with GBP/USD targeting the 1.30 region.
– **End of 202
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