Citi Predicts Pound Will Fall Sharply Against Dollar by End of 2026

Synopsis: Citi predicts GBP/USD will drop to 1.24 by end-2026, a 7.46% fall from 1.34. Stronger US growth, fewer Fed cuts, BoE’s aggressive easing, and UK political risks drive the bearish outlook.

The British pound hit its strongest level in four years in late January 2026. It surged above 1.3850 against the US dollar. But that momentum has already faded. The pound now trades just above 1.34 and one major bank thinks it will keep falling.

Source: TradingView

Citi, one of Wall Street’s biggest banks, has made a bold call. It forecasts the pound-to-dollar rate will drop to 1.24 by the end of 2026. That would mark a fall of nearly 7.4% from current levels. It stands out as the most pessimistic forecast among major global banks.

Why Citi Sees the Pound Heading Lower

Citi’s forecast rests on two main arguments. First, the dollar will strengthen throughout 2026. Second, the pound faces its own set of problems at home. Together, these two forces push GBP/USD lower. Citi has held a bullish view on the dollar since late 2025. Most other banks disagree with this view. However, Citi remains confident in its position.

The bank expects the US economy to pick up speed in the first half of 2026. Markets, it argues, have underpriced this risk. Stronger growth means the Federal Reserve may hold off on cutting interest rates. That makes the dollar more attractive to global investors.

Furthermore, Citi sees the nomination of Kevin Warsh as Fed Chair as a positive signal. It believes Warsh’s appointment reduces concerns about political interference at the Fed. That gives markets more confidence in the dollar’s stability.

Bank of England Expected to Cut Rates Aggressively

On the UK side, Citi expects the Bank of England to move fast. The bank forecasts three interest rate cuts in 2026. That would bring the policy rate down to 3.0%. Currently, most market participants expect far fewer cuts. Many forecast only one or one-and-a-half cuts this year. They see the terminal rate settling closer to 3.25% to 3.5%.

If Citi is right, the Bank of England will diverge sharply from the Federal Reserve. Lower UK rates reduce the appeal of holding pounds. Investors tend to move money toward currencies that offer higher returns. Therefore, a more dovish Bank of England weakens the pound’s position in global markets.

Lower rates also reduce deposit returns and increase capital outflows. Both factors apply downward pressure on sterling. This makes the pound more vulnerable to any negative news from the UK economy.

Political Risks Add to Sterling’s Troubles

Beyond interest rates, Citi also flags political uncertainty in the UK. The bank warns that political stresses could intensify through 2026. It specifically mentions the risk of a more serious challenge to Prime Minister Keir Starmer.

The UK government already faces pressure over its budget plans. Any signs of fiscal missteps could trigger a “Sell UK” reaction in financial markets. This pattern has played out before most notably during the 2022 gilt market crisis.

If investors lose confidence in UK economic management, the pound could fall even faster. Political risk adds another layer of uncertainty on top of the rate story.

How Citi’s Forecast Compares to Other Banks

Citi’s 1.24 target is a clear outlier. Most other major banks expect the pound to hold steady or even gain slightly. ING forecasts GBP/USD at 1.36 by end-2026. MUFG sees it at 1.378. TD Bank and others are even more bullish, forecasting up to 1.39.

The general market consensus sits around 1.35 to 1.38. Most banks lean on broad dollar weakness as the key driver. Citi takes the opposite view. It believes the dollar will rebound on cyclical strength, not structural weakness.

The risks to Citi’s forecast are real. If UK economic data comes in stronger than expected, the Bank of England may cut rates fewer than three times. On the otherhand  if US growth disappoints and the Fed cuts more, the dollar could weaken instead.

Nevertheless, Citi holds firm. It calls GBP/USD one of its highest-conviction trades for 2026. For businesses, exporters, and travelers with exposure to the pound, this is a forecast worth watching closely.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post Citi Predicts Pound Will Fall Sharply Against Dollar by End of 2026 appeared first on Trade Brains.