Pound Sterling to Dollar Forecast: GBP Could Fall on Dovish BoE Rate Cut

Modified: Thursday, 7 August 2025 07:00 BST - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: GBP Could Fall on Dovish BoE Rate Cut

The Pound-to-US Dollar exchange rate (GBP/USD) traded in a narrow range on Wednesday amid UK tax hike fears and a risk-on mood among investors.

At the time of writing, GBP/USD was trading at $1.3296, having wavered sideways since the start of the session.

The Pound (GBP) was subdued on Wednesday as mounting concerns about potential tax increases unsettled investors.

The latest warning came from the National Institute of Economic and Social Research (NIESR), which cautioned that Chancellor Rachel Reeves may be forced to implement tax hikes in the autumn to address a projected £41.2bn budget shortfall. Sluggish economic growth and persistent inflation have significantly narrowed the government’s fiscal flexibility.

The Pound has been under pressure as investors grow increasingly uneasy about the UK’s financial outlook. Rising public borrowing and the government’s recent decision to scale back welfare cuts – in an effort to avoid internal party dissent – have only added to worries. The NIESR’s analysis served to intensify speculation that new taxes may be inevitable, potentially dragging on the country’s economic recovery.

The US Dollar (USD) found little support on Wednesday, with GBP/USD holding steady in a tight range as a mildly risk-on sentiment in markets reduced demand for the safe-haven currency.

USD came under additional pressure amid growing speculation that the Federal Reserve could cut interest rates in September. Following a disappointing non-farm payrolls report last Friday, Tuesday’s weaker-than-expected ISM services PMI added weight to the case for monetary easing.


The US Dollar remained on the back foot as traders continued to price in a shift in Fed policy, dampening appetite for the 'Greenback' through midweek trade.

Looking ahead, the spotlight is firmly on the Bank of England’s (BoE) upcoming interest rate decision, which is likely to dominate Pound sentiment in the near term.

Markets widely expect the BoE to cut rates by 25 basis points – a move that may weigh on Sterling. However, with the rate cut largely priced in, the impact could be limited unless accompanied by more dovish policy signals.

Traders will be scrutinising the details of the decision, including the vote split among policymakers, updated inflation projections, and any hints on the future path of interest rates. A dovish tone – suggesting further cuts may be coming – could see the Pound slip.

On the other side of the pairing, the US Dollar may react to the latest initial jobless claims report. A rise in new unemployment claims would add to evidence of cooling in the US labour market, potentially dragging on the ‘Greenback’ as Fed rate cut expectations grow.

Broader market sentiment could also influence GBP/USD. Should risk appetite pick up, the increasingly risk-sensitive Pound may find support against the safe-haven Dollar, helping to cushion any losses triggered by a dovish BoE decision.

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TAGS: Pound Dollar Forecasts