Pound to Dollar Forecast: 1.45 if USD Reverts to Historic Mean

May 11, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar Forecast: 1.45 if USD Reverts to Historic Mean

RBC Capital Markets (RBC) expects a tentative Pound to Dollar exchange rate (GBP/USD) gain to 1.39 by the second quarter of 2026 as the dollar loses ground.

If the dollar reverts to historic mean levels, Westpac notes that GBP/USD could reach 1.45.

Standard Chartered, however, expects a GBP/USD retreat to at least 1.30.

GBP/USD dipped to near 1.32 on Thursday amid a dollar recovery before a recovery to just above 1.33.

The UK signed a trade deal with the US with lower tariffs on steel and car exports to the US, although the baseline 10% tariffs were maintained.

The deal increased market hopes that the US Administration would adopt a more conciliatory stance towards trade tariffs.

In this context, the dollar secured a further net recovery amid a reduction in the risk premium with little net Pound benefit.


Looking at the UK implications, HSBC commented; “The trade deal does mean the UK avoids the worst of some of the US’s tariff hikes, but most UK goods still face the 10% tariff introduced by President Trump on 2 April. This is much more than the average tariff of 2.2% previously.”

Standard Chartered commented; “market optimism is likely to be short-lived since the UK parliament needs to approve and finalise the trade deal.”

There will be an important focus on China with some dialogue due over the weekend, but a lot of work to be done to make any progress.

MUFG commented; “A reduction for China even to 60% and others at a rate in between that and the 10% floor for all other countries is still more like worst case scenarios prior to 2nd April.”

It added; “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.”

According to RBC Capital Markets the dollar will remain vulnerable; “Lingering trade uncertainty leaves the economic outlook still unknown, but it is clear asset markets price US assets with higher risk premia, higher volatility and higher uncertainty. So long as that stigma remains, we think USD selling through FX hedging or asset reallocation will remain the overall trend.”

The Federal Reserve held interest rates at 4.50%, in line with consensus forecasts. According to Chair Powell, the impact of tariffs will be greater than expected and there is likely to be upward pressure on both inflation and unemployment.


Higher unemployment would increase pressure for a cut in rates, but higher inflation would act in the opposite direction.

Given these potential tensions, Powell reiterated that the bank needed to be patient and wait for the data to signal the appropriate policy.

Markets cut the potential for a June rate cut to around 20% from near 60% previously.

The Bank of England (BoE) cut interest rates by 25 basis points to 4.25% which was in line with strong market expectations.

There was a 3-way vote split with Taylor and Dhingra voting for a larger 50 basis-point cut while Mann and chief economist Pill voted against cutting rates.

The bank maintained its guidance that interest rates should be careful and cautious given persistent inflation pressures.

HSBC is not backing another rate cut at the June meeting; “If all of the information is pointing in the same (dovish) direction, then it’s possible that the BoE will seek to speed up the pace of easing. But base case has to be for the next cut to come in August.”

Standard Chartered is more bearish; “we expect the Bank of England to cut rates more than other Developed Market central banks in the coming months as UK growth and inflation weaken due to global trade uncertainty.”

Westpac expects that GBP/USD will settled around 1.32 in June and rally to 1.36 by late 2026.

The bank added; “It is worth emphasising that there is clear upside risk to these forecasts if investors recoil from the US because of open-ended political and/or fiscal uncertainty. For Sterling, a full reset back to the 20-year average for DXY would equate to around 1.45.”

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TAGS: Currency Predictions Pound Dollar Forecasts