The GBP exchange rate against the RMB continues to be under pressure, with institutions divided on the outlook for 2026

The British pound experienced a rebound at the beginning of the New Year, but whether the future trend will continue to rise or pull back remains uncertain. Wall Street investment banks have given completely opposite forecasts.

Three Major Drivers Behind the Pound’s Rebound

On January 6, the GBP/USD reached 1.3562, the highest level since September last year. Over the past two months, the pound has appreciated by a total of 4.12% against the dollar, significantly outperforming the 2.22% gain of the euro against the dollar. This rebound is mainly attributed to the convergence of three forces: first, market confidence was restored after the UK announced a new budget; second, expectations of a slowdown in the central bank’s rate cuts reversed previous pessimism; third, the overall weakening of the US dollar provided support.

In November, the UK Treasury released a better-than-expected budget, which eased short positions on the pound. By December, the Bank of England adopted a more cautious stance on rate cuts, and this “hawkish” decision further solidified the foundation for the pound’s rise. From a yield spread perspective, the market generally expects the Federal Reserve to cut rates twice in 2026, while the Bank of England is expected to cut only once. This yield differential supports the pound.

Divergence Among Institutions Widens, Opinions Split Three Ways

Faced with the future trend of the pound against the RMB and other currencies, major investment banks are holding divergent views.

J.P. Morgan’s Neutral to Slightly Bearish Stance: The bank believes the pound is supported by economic resilience and carry trade attractiveness but is also constrained by twin deficits and political risks. Its forecast suggests an initial rise followed by a decline — GBP/USD reaching 1.37 in Q1, peaking at 1.41 in Q2, then retreating to 1.40 in Q3 and 1.36 in Q4.

Bank of America’s Clear Bullish Outlook: Bank of America analysts believe that the alleviation of UK fiscal pressures has eliminated market risk premiums. After political and economic risks are released, the pound is expected to undergo a recovery rally. In their view, the market has fully priced in the expected rate cuts by the central bank, leaving room for further appreciation, with a year-end target of 1.45.

Citi’s Pessimistic Warning: This institution takes a contrarian stance. Citi points out that the May local elections could increase political uncertainty in the UK, and more critically, the Bank of England will accelerate easing measures in the second half of 2026. Based on this outlook, Citi sets its year-end target for GBP/USD at 1.22, implying a significant decline.

The Future of the Pound in 2026

The outlook for the pound against the RMB and the global forex market remains uncertain. Factors supporting the pound include relative interest rate differentials and economic resilience, but political risks, twin fiscal deficits, and potential shifts in central bank policies could exert pressure. In the short term, the pound may oscillate within the 1.35-1.41 range, but whether it can break above resistance or weaken again below 1.30 depends on UK economic data, central bank signals, and the political risk release from local elections.

Investors should pay close attention to the views of these three major banks while monitoring the UK’s fiscal situation, employment data, and speeches by central bank officials, as these factors will be key variables influencing the pound’s exchange rate against the RMB and other currencies.