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UBS analysts indicated today that the GBP/USD exchange rate is expected to experience a short-term dip following its recent rally, before potentially climbing higher towards the end of the year.
Analyst Patrick Ernst pointed to the stabilization of the UK bond market after the volatility earlier in the year, which had led to a decoupling of FX rates. The current calm in the market has shifted focus to new risks, such as potential US tariffs, which could impact global risk sentiment and the GBP due to its cyclical nature.
Despite these concerns, European currencies have seen a rally, spurred by recent European fiscal spending news, which has also helped lift the GBP closer to the key 1.30 level against the USD.
UBS suggests that while the 1.30 mark may be surpassed eventually, a dip is likely in the near term, especially with tariff announcements expected in early April that could serve as a catalyst for a downward move. The firm forecasts that the GBP/USD could revisit the 1.26 level before rallying towards 1.31 by the end of the year.
Analysts anticipate a decline in the first half of the year followed by a rise in the second half. The introduction of a March 2026 forecast sees the GBP/USD reaching 1.31 by the end of this year. Additionally, UBS recommends using any upcoming dips as opportunities to reduce dollar exposure and prepare for the potential upside.
The report also outlines key levels to watch, with 1.30 cited as a significant resistance level, and 1.25 as a support level to monitor.
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