Pound to Dollar Forecast: GBPUSD Could See "Year's Highs of 1.34"

May 20, 2025 - Written by Frank Davies

STORY LINK Pound to Dollar Forecast: GBPUSD Could See "Year's Highs of 1.34"

The Pound to Dollar rate (GBP/USD) has continued to find support on dips and again challenged 1.3400 in Europe on Tuesday, without being able to break through this area.

Dollar confidence remains fragile with markets monitoring US budget developments very closely and there was further hawkish rhetoric from Bank of England (BoE) chief economist Pill.

ING commented; “Unless he's [Pill] turned substantially more dovish over the last week (unlikely), sterling faces some upside risk from his comments today. GBP/USD could be knocking on the door at the year's highs of 1.3400/3440.

In a speech on Tuesday, BoE’s Pill defended his decision to vote against the May rate cut.

According to Pill, the quarterly pace of interest rates since last summer is too rapid given the inflation outlook.

In this context, Pill described his vote as a skip in the rate-cutting process rather than a halt.

Although he does consider that the disinflation process is continuing, Pill stated that structural changes in price and wage-setting behaviour have increased the risk of persistent inflation.


Wednesday’s UK inflation data will be the next big even for Sterling markets.

Consensus forecasts are for a significant increase in the headline inflation rate to 3.3% from 2.6% with a notable impact from the increase in retail energy prices.

The core inflation rate is expected to increase to 3.6% from 3.4%.

April is also a key month for services-sector inflation given the annual increases in April

According to MUFG; “A consensus 3.3% CPI YoY gain will likely be met with relief. That’s the estimate of what the BoE expects as well and would help the BoE deliver the two rate cuts currently priced. An upside surprise would likely give GBP a boost although negative growth implication would likely mean the impact would fade quickly.”

The Pound is liable to lose ground if the data is weaker than expected.

US fiscal developments will continue to be monitored closely with the US Administration looking to win a full vote in the House of Representatives.


There are reports that President Trump will meet with House Republicans on Tuesday to drum-up support for the Bill.

Markets remain uneasy over the medium-term US debt dynamics and most analysts expect the Trump bill will worsen the problem.

Nordea commented; “If the beauty of the bill is hard to spot, we can at least agree that it is big (and growing). It also shows few signs of wanting to deal with the ever growing fiscal deficits.”

It added; “The lack of fiscal discipline should continue to discourage foreign investors from buying US treasuries and keep the yield premium over swaps high. More expensive funding further increases the US government debt problem.”

Rodrigo Catril, senior FX strategist at National Australia Bank added; "The market is still very wary of the lack of austerity coming from the fiscal side in the U.S. We think that is potentially a driver for dollar weakness over the coming quarters as the market is likely to demand a higher premium to lend money to the U.S.”

Saxo's Charu Chanana sees some scope for initial dollar support; "For now, U.S. exceptionalism and corporate resilience are offsetting the risks.”

Ahe added; "But how long before investors start demanding a higher risk premium, especially with the Fed in wait-and-see mode and trade talks seemingly stalling?”

According to Bank of America; “investors have started to rethink underhedged asset exposures to the US, which could lead to a prolonged valuation adjustment lower in the dollar.”

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TAGS: Pound Dollar Forecasts