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TD Bank sets out a constructive view on GBP/USD
A leading North American institution is stepping away from the prevailing gloom surrounding the UK currency and positioning for a rebound in the pound during 2026.
In its newly published strategy outlook, TD Bank sets out a constructive view on the pound to dollar conversion (GBP/USD), arguing that the market narrative has become excessively pessimistic even before the upcoming UK budget.
“Consensus expectations and forwards have moderated GBP optimism due to current fiscal focus,” says TD Securities.
With anxieties about the upcoming budget growing, investors are cautious. The latest Bank of America Fund Managers Survey shows that only 3% of respondents anticipate a stronger pound over the next 12 months, underscoring how out of favour the currency has become.
TD Securities highlights ongoing anxieties over longer-term investment and productivity outcomes, noting these worries tend to intensify as fiscal events approach:
“Extremely tight fiscal headroom and topical concerns around long-term productivity and investment in the UK which tends to peak around the budget release.”
Despite the consensus being pitted against sterling, TD's FX team says, “we disagree”:
"We expect GBP to eventually recover from its budget-linked underperformance which should peak shortly after the budget release. GBP has a higher beta to improved global growth prospects than some G10 peers like EUR, CAD.”
Their projections call for a sustained move higher in GBP/USD through 2026, with strategists expecting the pair to climb toward 1.39 by the end of the year.
They attribute this to an easing in US dollar strength, improving investor sentiment toward the UK, and what they see as underlying domestic resilience that is being overlooked.
Above: It's been a tale of two halves for the GBP/USD in 2025.
TD’s modelling suggests sterling is currently undervalued, with strategists pointing to fiscal risk premia tied to the budget cycle as a key driver. They anticipate that this discount will gradually disappear as 2026 progresses.
Rates expectations form another pillar of the bank’s constructive view. As the team puts it, “We also expect GBP to get a lift from the relative rates channel as our forecast for the BoE is hawkish vs. market pricing whereas it is dovish for the Fed vs what’s priced in,” implying the rate differential could shift in sterling’s favour.
Regarding the dollar's outlook, TD says its forecast for USD is 3-5% below consensus for 2026.
"While we do see the US economy outperforming consensus in 2026, there is enough global resilience and Fed easing to keep us from moving out the tails of the USD smile. We think 2026 is likely to bring a rotation from carry to value," says the bank.