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Pound to Dollar Forecasts Maintain "Downside Risk" say UoB

May 9, 2025 - Written by Ben Hughes

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The Pound to Dollar exchange rate (GBP/USD) briefly hit 1.3350 on the Bank of England policy decision and UK-US trade deal before a retreat to lows near 1.3200 as the dollar posted strong gains in global markets.

GBP/USD recovered to 1.3270 on Friday as the dollar lost some of the gains, but has more work to do to negate the downside.

According to UoB; “The downside risk will remain intact as long as 1.3320 is not breached.”

The UK-US trade deal provided an element of Pound support, but the larger impact came from hopes that the US would moderate its stance on trade tariffs. This would tend to lower the dollar’s risk premium in global markets and the US currency posted gains.

MUFG expects limited trade gains; “Trump’s words yesterday may have indicated we are moving to a better place for global and US growth but his words also suggested trade uncertainty would remain high. That means, in our view, that there will be limits to this US dollar recovery with damage to the US economy likely to become more evident in US economic data.”

ING also noted the importance of trade; “US trade developments remain the single biggest driver for the dollar, and the consolidation of bullish USD momentum requires a constant flow of positive news on trade deals – especially with China. For this week, most of the positives from improved trade sentiment may already be factored into the dollar, which may fail to find more support today.”

ING, however, expects GBP/USD will be held below 1.35 throughout 2025.


In relative terms, the UK position has improved compared with other countries, but the UK position with the US is still worse than before April.

According to Peter Cardillo, Chief Market Economist, Spartan Capital Securities; "This is what the market has been looking for some sort of a breakthrough. Now, of course does this put to rest of the uncertainties regarding the trade war effects? No, but it's a start."

He added; “This weekend they'll be talking to China and that'll probably take time, but I suspect that the next deals could emanate from either Japan or India."

According to Standard Chartered global head of G10 currency research Steve Englander; “The market reaction of buying USD may reflect greater optimism that such tariff deals are doable."

He added; "Trump's dangling of the prospect of a trade détente with China may be adding to optimism that the global disruption from trade wars may not be as severe as markets have feared.”

Quilter Investment Strategist Lindsay James commented; "Overall, while we await the details it is clear the UK is in a better trade position with the US compared to yesterday, but things remain much worse than six months ago. This deal is an encouraging start in what is now expected to be a longer-term process to move to a more wide-ranging deal."

Rabobank noted; “As the trade deal ‘details’ emerged, sterling fell back. For even as the UK looks to have secured a deal, weaker global growth still weighs on demand for its exports, dragging down UK growth. And 10% is, well, still 10%.


Pepperstone’s Brown added; “The biggest takeaway from all of this for me is the 10% baseline tariff is still in place no matter what they’ve agreed."
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