May 7, 2025 - Written by Ben Hughes
STORY LINK GBP/USD Forecast: Pound to Trade "Back to 1.3445 High" Over Next Few Days
The Pound to dollar exchange rate (GBP/USD) has again found support below 1.3300 and advanced to 1.3365 in early US trading on Wednesday.
The dollar index (DXY) traded around 99.45.
ING expects the dollar will continue to struggle while it expects that markets are too aggressive over near-term Bank of England rate-cut prospects.
It added; “We therefore have a bias that GBP/USD trades back to the 1.3445 high over the next couple of days.”
UoB sees a 1.3240 - 1.3450 range in the short term.
The Federal Reserve will announce its policy decision after Wednesday’s close.
There are very strong expectations that rates will be held at 4.50% as the central bank remains in wait and see mode.
Deutsche Bank commented; “We expect the Fed to keep rates steady and avoid explicit forward guidance about the policy path ahead. The overall tone of the meeting is likely to echo comments from Chair Powell and his colleagues in recent weeks. In particular, the administration's policies are likely to push the economy away from the Fed's dual mandate objectives for a period of time but that monetary policy is "well positioned" to respond to the evolving outlook.”
According to Barclays; “We expect Powell to signal the FOMC is in no rush to cut rates. Our baseline call has two 25bp cuts this year, in July and September.
Dollar sentiment remains fragile. According to IG analyst Tony Sycamore; "I don't think the theme of U.S. dollar weakness is going to change. There's also a lot of uncertainty from offshore investors as to whether they want to be overexposed or overweight U.S. equities."
According to ING; “DXY stalled last week exactly where it should have if we are seeing a weak bear market correction.”
Scotiabank notes the number of rate cuts priced in; “Markets are still pricing several cuts into year-end and could be vulnerable to adjustment if Chair Powell leaned toward a brighter outlook.”
ING admitted the risk of stop-loss dollar buying, but added; “Price action has been poor and a drift back to 99.25 in quiet markets will confirm that the dollar is struggling to shake the risk premium associated with uncertain US policymaking.”
Credit Agricole is more positive on the dollar; “The latest divergence between the USD and US rates therefore signals to us that the currency is looking very cheap and should recover, especially if the Fed fails to live up to the still dovish market expectations on Wednesday.”
The Bank of England (BoE) will announce its latest policy decision on Thursday. There are very strong expectations that there will be a 25 basis-point cut to 4.25%.
According to SocGen; “Key data undershooting expectations and tariff risks tilting towards lower growth and inflation make it an easy decision for the MPC.”
Bank of America commented; “Lower inflation and growth forecasts can open the door for faster cuts in the second half of the year. Still, we think the BoE will retain its careful, gradual and meeting-by-meeting guidance while reiterating the need for policy to remain restrictive, in the midst of uncertainty.
It added; “Having said that risks of a dovish pivot in May cannot be ruled out, especially if inflation forecast downgrades are bigger than we expect, opening the door for faster cuts already.
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TAGS: Currency Predictions Pound Dollar Forecasts