Pound to US Dollar Forecast: UK Assets and British Currency "Favourable"

May 13, 2025 - Written by Frank Davies

STORY LINK Pound to US Dollar Forecast: UK Assets and British Currency "Favourable"

BoE Inflation Warning Boosts the Pound, GBP/USD Exchange Rate Edges Away from 4-Week Lows

The U.S. dollar has maintained a firm tone in global markets amid a further unwinding of short positions following the deal with China to lower tariffs sharply for the next 90 days. There was, however, no further support from the latest US inflation data and the currency retreated from intra-day highs.

The Pound held its own in global markets, especially with firm equities, while further hawkish comments from Bank of England chief economist Pill also underpinned the UK currency.

According to Lombard Odier chief economist Samy Chaar; "The global environment for UK assets and therefore the currency is actually relatively favourable.”

The Pound to Dollar (GBP/USD) exchange rate advanced to 1.3240 from 4-week lows at 1.3140 yesterday.

UoB noted, “GBP could retest the 1.3140 level before a more sustained recovery can be expected.” It added that a move above 1.3275 would negate the immediate downside risks.

Reaction to the US-China agreement to lower tariff rates sharply remained a key market element.


According to National Australia Bank senior FX strategist Rodrigo Catril "It's way better than the market was expecting. It's just an indication of, for one, the U.S. administration is quite sensitive to the impact (tariffs are) having on the economy, and some would say there's been a serious walk back in terms of what they've done."

ING also expects the dollar will gain some net support from evidence of a shift in policy stance. According to the bank; “the view that Washington seeks to pull back from an act of self-harm has sent equity markets soaring and the US 10-year swap spread (a credit gauge for the US government) has narrowed a little.”

It added; “Very compelling stories for asset re-allocation away from the US and the dollar may have to be paused temporarily – at least until we see how much this uncertainty has hit the hard data.”

ING does see a limit to further dollar gains; “We suspect that both the public and private sectors will want to cut their share in US allocations/raise dollar hedge ratios into any 2-3% dollar rally from current levels.”

US consumer prices increased 0.2% for April after a 0.1% decline the previous month, but slightly below consensus forecasts of 0.3% with the year-on-year rate edging lower to 2.3% from 2.4%.

Core prices increased 0.2% on the month with the year-on-year inflation rate holding at 2.8%.

The chances of a June Federal Reserve rate cut were still seen as below 10%.


UK data reported a strong April reading for retail sales while the labour-market data was mixed.

There were clear indications of a weaker jobs market, but wage pressures remained stubborn with headline earnings growth of 5.5% in the year to March from 5.7% previously.

There were further hawkish comments from Bank of England chief economist Pill.

According to Pill; "I remain concerned that we have seen a sort of structural change in price and wage-setting behaviour, maybe driven by the type of things that were involved in models of the inflation process from the '70s and '80s."

He added; “the response of monetary policy, in order to ensure that we get back to our target within a reasonable cycle, needs to be somewhat more aggressive or more persistent in itself."

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TAGS: Pound Dollar Forecasts