I’ve spent the past month watching the US dollar do almost the opposite of what most forecasters — plenty of banks included — expected at the start of the quarter. Rather than sliding as the Iran risk premium unwound, the dollar has firmed. Here is my updated take on where the dollar and GBP/USD are heading through the rest of 2026, and the forces actually moving the rate right now.
As I write at the end of May, the US Dollar Index (DXY) trades near 99, up roughly 1% on the month. GBP/USD sits around 1.343, having given back most of an early-May push toward the mid-1.36s, and EUR/USD is broadly range-bound near 1.165. If you have USD to buy or sell this year, the timing question matters more than usual — so it’s worth understanding why the dollar has held up. You can always request a quote and talk it through with a specialist.
What’s happening with the US dollar right now?
The dollar dipped in early May, then recovered, and the reason comes down to two things working against the consensus.
The first is inflation. The energy shock from the Iran conflict pushed US headline CPI up to 3.8% in April — the highest since May 2023 — with core PCE at 3.3%. Both sit well above the Federal Reserve’s 2% target, and that has removed the room the Fed had to cut rates. Markets have repriced accordingly: from expecting cuts earlier in the year, they now expect the Fed to hold through year-end, and even assign roughly a 46% probability to a rate hike in December. Higher-for-longer US rates support the dollar.
The second is the Iran ceasefire — or rather, the fact that it isn’t signed yet. The US and Iran have broadly agreed a 60-day ceasefire extension and a gradual reopening of the Strait of Hormuz, but President Trump has not signed off and the Strait is not yet fully open. While that uncertainty lingers, a residual safe-haven bid stays under the dollar. Oil tells you de-escalation is being priced in — Brent has fallen to around $91–92, its worst month since the pandemic — but until the deal is done, the dollar keeps its premium.
US dollar outlook 2026: the Powell-to-Warsh handover and Fed policy
The biggest medium-term driver is the change at the top of the Fed. Kevin Warsh was confirmed by the Senate on 13 May in a 54–45 vote — the closest in the modern era — and took over as Chair when Jerome Powell’s term ended on 15 May. Powell hasn’t left the building: he stays on as a Governor, at least until the investigation into the Fed’s headquarters renovation concludes.
Warsh chairs his first policy meeting on 16–17 June, and it comes with a fresh set of forecasts and a new dot plot — the first formal read on his rate path. President Trump has been clear he wants lower rates, and Warsh has signalled openness to cutting earlier than the previous consensus. Here’s the tension, and in my view it’s the key to the whole picture: a dovish-leaning Chair has inherited 3.8% inflation, and he can’t simply cut into that. That conflict between political pressure for cuts and an inflation backdrop that won’t allow them is exactly why the dollar has held up better than expected. For anyone with a USD payment around that June meeting, fixing the rate beforehand removes the single most consequential unknown of the next ninety days.
Will the US dollar recover or get stronger in 2026?
My honest answer is that it’s now two-sided, where a few months ago it looked one-way. If you want my one-line USD prediction for 2026, it’s this: the dollar stays firm in the near term, then softens later in the year only if the Iran ceasefire is signed and US inflation cools.
Near term, the dollar is firmer than the consensus expected, and I don’t see that changing without a clear trigger. The softer-dollar case that dominated earlier in 2026 hasn’t disappeared, but it has become conditional. For the dollar to weaken meaningfully into the back half of the year, I’d want to see two things: the ceasefire actually signed, removing the safe-haven bid, and US inflation resuming its decline so the Fed has room to cut. If both happen, a softer dollar later in 2026 is the path of least resistance. If neither does, the dollar stays supported. That’s why I’m forecasting wide ranges this year rather than a single number — the path genuinely hinges on those two events.
It’s worth knowing where the big banks sit. The major-bank consensus earlier in 2026 leaned toward dollar weakness — the widely-cited Goldman Sachs dollar weakness forecast pointed to a DXY in the low-90s, with JPMorgan and MUFG in similar territory. But every one of those calls rests on the Fed cutting rates, and with inflation back at 3.8% those cuts have been pushed back. That is the single biggest reason the dollar has firmed against the consensus, and why I treat the bearish-dollar bank targets as conditional rather than a base case.
My GBP/USD forecast for the next six months
GBP/USD is largely a dollar story at the moment — sterling hasn’t weakened so much as the dollar has firmed. The Bank of England held Bank Rate at 3.75% on 30 April in an 8–1 vote, with a single member preferring a hike to 4%, and the next decision lands on 18 June, the day after the Fed. UK inflation is also elevated at 3.3%, but the consensus — including the IMF — leans toward holds for the rest of the year with possible cuts later, rather than hikes. The relative path of the Bank of England against the Fed is what drives this pair, and right now that argues for cable holding in a range rather than breaking out.
Here are the ranges I’m working to through the rest of 2026. The upper end of each DXY range reflects the dollar staying firm; the lower end reflects the softer-dollar case playing out.
For a deeper look at the pair, see my full GBP/USD forecast and the wider GBP forecast for 2026.
What about EUR/USD?
The euro is the heavyweight in the dollar index, so it matters here. The European Central Bank held its deposit rate at 2.00% on 30 April, unanimously, though policymakers openly debated a hike. With eurozone inflation at 3.0% headline and 2.2% core, the ECB carries a genuine hike bias into its 11 June meeting — unusual among the major central banks, and a factor that limits how far the euro can fall. I’d expect EUR/USD to hold roughly between 1.15 and 1.22 across the rest of the year. There’s more detail in my euro forecast for 2026.
Is it a good time to buy or sell US dollars?
A simple way to judge whether it’s a good or bad time is to look at where the rate sits against its own recent history. GBP/USD reached around 1.382 in late January 2026 and trades near 1.343 now, so cable is some way below its high for the year. Over a longer horizon it has spent years moving within a broad band, and it rarely sits at an extreme without a major event to push it there.
If you’re buying dollars — paying a USD invoice, completing a US property purchase — a lower GBP/USD rate costs you more pounds. With the dollar firmer than the consensus expected, the cheaper window we saw earlier in May has narrowed. If the softer-dollar case plays out later in the year and cable climbs toward 1.40, that would work in your favour, but it isn’t guaranteed, and waiting carries its own risk.
If you’re selling dollars — bringing US proceeds back to sterling — the firmer dollar has improved your pound proceeds for now. The risk runs the other way: if the pound strengthens later in 2026, each dollar converts into fewer pounds. To put numbers on it, $200,000 converted at 1.34 yields about £149,254; the same sum at 1.40 yields about £142,857 — a difference of roughly £6,400 on one transfer.
This is where the tools matter. A forward contract lets you fix today’s rate for a payment or receipt up to twelve months ahead, at no extra cost — useful if you simply want certainty around the June Fed meeting. A limit order targets a better rate and executes automatically if the market reaches it. And splitting a large amount into two or three tranches averages out your timing rather than betting everything on a single day. If you’re weighing this up, I’ve written separately on whether to lock in a rate now or wait, and on the best way to transfer large amounts internationally.
A note from experience
In the years I’ve spent doing this, the most expensive mistake I see isn’t picking the wrong moment — it’s waiting for a perfect rate that never arrives. I’ve spoken to people who held off on a transfer for so long, chasing a level a cent or two better, that they put a house purchase or a business payment on hold for months and missed the thing they were actually trying to do.
A recent example: a client completing a US property purchase, with the deposit due shortly after the June Fed meeting, was understandably nervous about what a new Fed Chair’s first dot plot might do to the rate. Rather than gamble on it, they fixed the rate with a forward contract, took the uncertainty off the table, and got on with the purchase. That’s usually the right instinct — exchanging money well is about securing a sensible rate and then moving on with your plans, not trying to call the exact top or bottom.
Frequently asked questions
Will the US dollar get stronger in 2026?
The dollar has been stronger than the consensus expected in mid-2026, supported by US inflation at 3.8% and an unsigned Iran ceasefire. A sustained DXY move above 100 would likely need the ceasefire to collapse or inflation to climb further. The medium-term consensus still leans toward a softer dollar, but only once the Fed has room to cut.
What is the USD prediction for 2026?
My USD prediction for 2026 is that the DXY trades between 93 and 100 across the rest of the year — firm near term, then softer later only if the Iran ceasefire is signed and US inflation cools. On that basis I expect GBP/USD at 1.33–1.41 and EUR/USD at 1.15–1.22.
Will the US dollar recover in 2026?
The dollar has already recovered most of its early-May dip, trading near 99 on the DXY in late May. Whether it holds those gains depends on US inflation and the Iran ceasefire. If disinflation resumes and the ceasefire is signed, the path of least resistance later in 2026 is a softer dollar; if not, it stays supported.
Why is the US dollar not falling as forecast in 2026?
Forecasts written earlier in 2026 expected the dollar to weaken as the Iran risk premium unwound. Instead, the energy shock pushed US inflation to 3.8%, removing the Fed’s room to cut, and the ceasefire remains unsigned — so the safe-haven bid has not fully unwound. Both factors have kept the dollar firmer than expected.
What is the DXY dollar index outlook for 2026?
The US Dollar Index (DXY) is forecast to trade between 93 and 100 across the rest of 2026. The 2026 high of 99.18 was set on 8 April; the index dipped in early May before recovering to near 99. Bearish-dollar bank forecasts point to the low-90s, but those calls are conditional on Fed rate cuts that have been pushed back by stronger inflation.
How Cambridge Currencies can help
Getting a good or bad USD rate makes a real financial difference, but for most people foreign exchange isn’t something they deal with often, and it can feel stressful. We work differently from the apps and online-only platforms. Every transfer is handled by phone with a dedicated specialist — a dealer, not an app — who keeps an eye on the market on your behalf and lets you know when it moves in your favour. We cover more than 190 countries and 50-plus currencies, and we work with FCA-authorised payment partners (Currencycloud, FRN 900199, and ScioPay, FRN 927951), with client funds held in safeguarded accounts.
If you’d like to discuss current USD rates, or you have a payment coming up around the June Fed meeting, request a free quote and we’ll talk it through. You can also follow the moves each week in our weekly currency forecast. None of the above is financial advice — it’s guidance to help you make your own informed decision.
