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Will another new PM be able to kickstart the UK economy? (Sean Aidan Calderbank: Shutterstock).
How do leading banks forecast GBP, EUR and USD will perform by the end of the third quarter of 2026?
The past three months have been defined by political rupture, energy uncertainty and a US dollar that has reasserted itself on the global stage. The oil shock may have eased, but the consequences are still being felt across inflation, interest rates and business confidence.
For UK businesses, there is a very real risk that another change in prime minister, higher input costs and a cautious Bank of England will leave the pound vulnerable through the summer.
Our latest Quarterly Forecast explores these themes in depth, with exchange rate forecasts from leading banks and analysis of what the next three months could mean for your cashflow, budget and gross profits.
Sterling faces a summer test
There was once a time when Britain could look at political instability elsewhere and comfort itself with the idea that things were calmer at home. Those days feel distant now.
As the UK prepares for another change in leadership, sterling is entering the quarter under pressure from political uncertainty, strained public finances and renewed tension in the bond market. The report asks whether the next Labour leader can kickstart the economy, and what a new era in Westminster could mean for the pound.
The UK economy began 2026 with encouraging momentum, recording the strongest growth in the G7 in the first quarter. But higher energy prices, weaker business investment and softer consumer confidence have complicated the picture. Inflation has not run away, but it remains stubborn enough to keep the Bank of England on alert.
For businesses exposed to currency markets, political change can create opportunity. It can also create sharp, sudden movements that leave unprotected budgets exposed.
The dollar is back in a big way
After months of debate over whether the US dollar was losing its grip on global markets, the greenback has returned to form.
Safe-haven flows, interest rate speculation and the ongoing AI frenzy have all supported the dollar. Sterling, by contrast, has been weighed down by domestic politics and concerns around borrowing costs. The euro has also struggled to take full advantage of US dollar weakness, with renewed appetite for the dollar undermining talk of a lasting “global euro moment”.
That shift matters for UK businesses. GBP/USD forecasts from leading banks remain spread across a wide range, and the difference between the highest and lowest predictions could have a material impact on budgets.
In our latest report, the predictions for a business changing £1 million carry a disparity of $90,000 for USD and €40,000 for EUR. That is not a rounding error. It is a potential hit to cashflow.
Energy, inflation and interest rates
Oil markets may have calmed after the immediate shock of the Strait of Hormuz crisis, but the energy question has not disappeared.
The past quarter showed how quickly a geopolitical flashpoint can overturn economic assumptions. Higher fuel prices feed into production, logistics and retail costs, creating pressure that can last long after the initial spike has faded. Even if the worst of the crisis has passed, businesses may still face a more expensive operating environment through the summer.
This leaves central banks in a difficult position. The Bank of England has been forced into a holding pattern, with inflationary pressures still “in the pipeline”. The European Central Bank moved first among the major rate setters with a June hike, while the Federal Reserve faces pressure of its own as markets assess the balance between high prices, political pressure and the strength of the US economy.
For businesses, the risk is not only that rates stay higher for longer. It is that uncertainty around rates, inflation and energy costs makes planning more difficult at precisely the moment when cashflow discipline matters most.
Forecasts are not certainty
The past quarter offered another reminder that even the most sophisticated forecasts can miss the mark.
Our research found that four in ten exchange rate predictions made over the past decade missed by more than 5% when made three to 12 months into the future. For forecasts made 12 months ahead, the average miss rose to 7.3%.
That does not mean forecasts are useless. Far from it. They are an essential planning tool. But relying on predictions alone can be a dangerous strategy, especially when the range between forecasts is large enough to change your margins.
The last few months have seen GBP/USD, GBP/EUR and EUR/USD all respond to a shifting mix of politics, energy, growth expectations and central bank speculation. The next three months could prove just as volatile.
What this means for your business
The coming quarter contains several events that could move markets, including the Labour leadership deadline on 16 July, the Jackson Hole symposium in late August and German state elections in September.
Our July to September Quarterly Forecast includes the full breakdown of leading bank predictions, analysis of the major currency pairs and a calendar of the key dates that could shape GBP, EUR and USD heading into October.
The report also features an update on SmartHedge PRO, our treasury solution with new stress-testing capabilities designed to give finance teams greater control over their cashflow. Businesses can now model different scenarios, adjust key variables and understand how exchange rate movements could affect important financial metrics.
Cash is still king. It funds investment, reduces liabilities and keeps businesses resilient when conditions become difficult. In a quarter shaped by political upheaval, energy risk and uncertain interest rates, protecting that cashflow has rarely been more important.
Download the latest Quarterly Forecast to understand the risks ahead, or contact our treasury experts on 020 7898 0500 to discuss how your business can protect its cashflow and gross profits.
