Pound to Dollar Forecast: "Slight Risk Premium for Puts over Calls"

June 26, 2025 - Written by Ben Hughes

STORY LINK Pound to Dollar Forecast: "Slight Risk Premium for Puts over Calls"

US Dollar Waits for Powell’s Second Round, GBP/USD Holds Below 40-Month Highs

The Pound to Dollar (GBP/USD) exchange rate hit 41-month highs close to 1.3650 on Tuesday as the dollar came under further pressure before a retreat to just above 1.3600.

There were relatively tight ranges amid a hiatus in the Middle East with markets also waiting for the second round of Congressional testimony from Fed Chair Powell.

UoB commented; “Should GBP break and hold above 1.3655, it would increase the potential for GBP moving above 1.3700.”

According to Scotiabank; “The latest gains have pushed the pound to levels last seen in January 2022, and the recovery in the RSI hints to renewed momentum as it confirms the trend. We see no major resistance ahead of 1.3750.”

Middle East tensions remained lower, but there is still a high degree of uncertainty, especially with differences of opinion over the extent of damage to Iran’s nuclear industry.

Danske Bank commented; “we are not yet fully convinced that the danger is over. Israeli PM Netanyahu (but also Trump) has hinted that he wants to topple the Islamic regime, and if that is the case, their job is not yet finished.”


Scotiabank notes that tensions are still hampering Sterling; “GBPUSD risk reversals continue to price a slight risk premium for puts over calls, owing to recent tensions in the middle east, and an unwind of this offers another source of near-term upside for the pound.”

Overall confidence in the dollar remains fragile with expectations that unease over the economy, together with Fed rate cuts and fiscal concerns will trigger a drop in US asset allocations by global funds.

Nordea commented; “We think the drop we have seen both in USD and in long end US bonds lately is the start of investors losing confidence in the US. Changing allocations away from a high performing asset could take time, but we see this process accelerating.”

In testimony on Tuesday, Fed Chair Powell continued to preach the case for patience on interest rates, especially as there is still a risk of higher inflation numbers over the next three months.

There were, however, dovish elements with comments that the Fed will act if the labour market deteriorates.

According to MUFG; “Powell’s comment that the Fed could cut rates “sooner rather than later” if inflation remains contained added to comments from previous FOMC members that confirms a shift is taking place toward cutting rates.”

Rabobank pointed to uncertainty over tariffs; “Until this is clear, the Fed Chair believes the economy is strong enough to allow the FOMC to wait and assess the inflation outlook. We therefore believe the Fed will wait until September for its first and only rate cut this year.”


Economic conditions will be crucial and Scotiabank commented; “The US data run has disappointed market forecasts consistently in the past few weeks, suggesting that analysts’ expectations are too high and/or the economy is weaker than expected.”

Domestically, the latest survey from Brightmine and recruitment platform Indeed suggested that there was further evidence of a softer labour market. It reported that job vacancies are 21% below pre-COVID levels while the UK is the only major economy tracked by Indeed with job openings below pre-pandemic levels.

The overall stance from Bank of England officials remained cautious.

Governor Bailey commented; "The path of [interest] rates is still downwards, but it is going to be very gradual and very careful because we've got this [inflation] bump and we got to see that come out."

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TAGS: Pound Dollar Forecasts