US yields have risen sharply since the conflict with Iran began, but the US Dollar has strengthened by less because interest rates have also increased in other countries. This has limited the change in relative rate support for the Dollar.
Societe Generale’s end-2026 forecast for GBP/USD is below the Bloomberg consensus level, which implies a weaker Pound over the medium term. The bank links this to a shift in the interest rate outlook, led by movements in short-dated US yields.
The article states that 2-year yields have risen by over 6% since the war started. It also reports a continuing trend of US 2-year yields rising faster than those seen elsewhere.
Bloomberg’s end-2026 consensus forecasts are DXY 96.7, EUR/USD 1.20, and GBP/USD 1.35. Societe Generale’s end-2026 forecasts are DXY 98.6, EUR/USD 1.16, and GBP/USD 1.32.
The article notes it was produced with the help of an artificial intelligence tool and reviewed by an editor.
The outlook for interest rates has shifted significantly since the conflict with Iran began. While we’ve seen bond yields rise globally, the trend of US rates outpacing others is becoming more pronounced. This divergence is the key factor steering our currency view for the medium term.
We are seeing this play out in the data right now. The latest US inflation figures for April came in hot at 3.8%, keeping pressure on the Federal Reserve, while UK inflation has shown more consistent signs of cooling. Consequently, the yield spread between US and UK 2-year government bonds has widened to over 150 basis points, a level we haven’t seen since the market re-pricing in late 2025.
For traders in the coming weeks, this suggests a cautious stance on the pound, with a bias to sell into any strength against the dollar. We see value in using options to position for a move towards 1.32, such as buying GBP/USD put options or structuring put spreads to cheapen the cost of entry. This approach allows for participating in the expected downward trend while managing risk.
This is not just a pound story; the dollar’s strength appears broad-based, aligning with our DXY forecast of 98.6. Recent weak industrial production data out of Germany reinforces the view that the European Central Bank may have less room to keep pace with the Fed. Therefore, we expect similar downward pressure on EUR/USD, with our forecast at 1.16 being more bearish than the consensus of 1.20.
