Pound to Dollar Forecast: Buy the Pullbacks "Below 1.32" say UBS

May 16, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar Forecast: Buy the Pullbacks "Below 1.32" say UBS

The Pound to Dollar exchange rate (GBP/USD) failed to hold above 1.3300 on Friday and settled just below this level.

The dollar was resilient despite another soft US data release and increased stagflation fears.

UK data next week will be important for Pound direction.

According to UBS, there is the risk of near-term weakness; “We think renewed pullbacks below 1.32 (1.30-1.32 range) are possible due to the de-escalation of the global tariff situation.

It added; “We like to use such moves to build up some GBPUSD long positions amid long-term USD concerns.”

The University of Michigan consumer confidence index retreated further to 50.8 for May from 52.2 previously and below consensus forecasts of 53.1 with current conditions and expectations components both losing ground.

According to Surveys of Consumers Director Joanne Hsu; “Many survey measures showed some signs of improvement following the temporary reduction of China tariffs, but these initial upticks were too small to alter the overall picture – consumers continue to express somber views about the economy.”


The 1-year inflation expectations also jumped again to 7.3% from 6.5% and the highest reading since April 1981.

This combination will increase US stagflation fears and hurt dollar sentiment.

At this stage, markets are still pricing in less than a 40% chance of a July rate cut.

MUFG commented; “We still see July as quite plausible for a cut but labour market conditions will be key. We maintain that damage has been done from trade policy uncertainty already and while yesterday’s comments highlighted further the Fed’s caution in a new world of potentially frequent supply-side shocks, labour market weakness is still set to unfold which will see the Fed’s caution ease. That remains one of a number of factors that we believe will weaken the dollar further this year.”

Scotiabank noted the run of relatively weak data. It added; “This development does not bode well for the broader USD and may set the stage for renewed medium-term weakness following the countertrend recovery we’ve observed over the past few weeks.”

George Saravelos, head of forex research at Deutsche Bank expects structural vulnerability will undermine the dollar; "The U.S. cannot close its very large current account deficit unless it closes its fiscal deficit too which the U.S. appears unwilling to do.”

Hopes for stronger UK ties with the EU are providing net Pound support.


Matthew Ryan, strategist at global financial services firm Ebury commented; "Market participants will be hoping for a 'reset' of sorts in the relationship between Britain and the common bloc in the hope that an accord can be reached that reverses some of the damage done to trade relations."

He added; "Signs of closer alignment between the UK and EU should be bullish for the pound."

UBS expects the UK outlook will be crucial; “The CPI print for April and forward-looking activity indicators, such as the flash PMIs for May, will be more important. Solid wage growth could keep inflation on the elevated side, with positive activity spillover effects keeping PMIs stable, despite tariff concerns.”

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TAGS: Pound Dollar Forecasts